Real GDP at 3.8% in 2017, 3.6% in 2018, 3% in 2019
Economic activity in Cyprus is expected to continue to expand strongly this year, with real GDP estimated to have increased by 3.8% last year, while in 2018, growth is forecasted at 3.6%, tapering off to 3% next year, according to the January Economic Outlook of the University of Cyprus.
Real GDP growth is projected to reach 3.7% in the first half of 2018 and subsequently to ease to 3.5% in the second half of the year, the UCy Economics Research Centre concluded.
The data will be music to the ears of incumbent President Nicos Anastasiades, whose campaign for re-election has focused on the economic recovery, following the 2013 banking crisis and meltdown that resulted in the closure of Laiki Popular Bank and the rescue of Bank of Cyprus and the Co-operative Bank.
The UCy January outlook said that the main factors driving the strong growth rates forecasted in the next five quarters include: the solid improvements in domestic activity and labour market indicators in recent quarters, the steady upward trend in the level of the domestic economic sentiment indicator, the favourable external economic environment and the subdued inflation rates.
Other positive domestic developments, such as the strong fiscal performance, the low levels of lending interest rates, the rise in deposits and the ongoing deleveraging, have also contributed to the strong outlook for 2018.
Downside risks to the growth forecasts include a sluggish progress in the management of non-performing exposures on banks, ineffective resolution of problematic loans, and lack of momentum in completing pending and launching new structural reforms. These risks, which stem from the high levels of private debt and non-performing loans (NPLs), and the high public debt relative to the size of the economy, could limit growth prospects by undermining economic confidence, financial stability and fiscal sustainability.
Beyond our shores, the UCy said that lower-than-expected growth in the UK, the uncertainty effects of Brexit and a weaker pound could also have adverse effects on growth.
According to the monthly outlook, upside risks are associated with public investment in infrastructure and private investment, especially in the sectors of energy, tourism and real estate, as well as with better-than-anticipated growth outturn in the EU and Russia.
The more optimistic outlook in the bulletin, vis-a-vis the November issue, is mainly the result of upward revisions of the GDP data (constant prices) for the period between the first quarter of 2015 and the second quarter of 2017. The positive developments in domestic macroeconomic and leading indicators, and the favourable external economic conditions during the second half of 2017 have also contributed to the upward revision of the forecast from 3.3% in the November issue to 3.6%.
The CPI inflation projection for 2018 has been revised from 1.8% in the previous issue to 1.0%. The large downward revision was mainly driven by the absence of significant upward price pressures in the second half of 2017.
“Based on our forecasting methodology, the analysis presented in this issue shows that real activity will continue to improve in the following quarters. Our forecasts are based on complementary methods compared to those of other institutions,” the authors of the report said.
“Comparing the growth forecast for 2018 in this bulletin we find that it is in line to the growth rate projected by the IMF (3.6%) and close to that of the Central Bank (3.4%). Yet, our current forecast for 2018 is more optimistic than the outlook forecasted for Cyprus by the European Commission (2.9%). Based on historical, published data available so far (17/1/2018), our preliminary results suggest that growth is expected to edge down to around 3% in 2019.”
