ECONOMY: Cyprus to enjoy robust 3.9 pct GDP growth for 2018

Cyprus should experience robust GDP growth of 3.9% in 2018 and 3.3% next year, the University of Cyprus (UCY) economic research centre said Friday.

The island enjoyed the best economic performance for a decade last year also with 3.9% GDP growth buoyed by a booming tourism sector.

The main drivers of the outlook in 2018 and 2019 include the recent strong economic performance in Cyprus, the supportive external environment, low levels of interest rates and inflation, and the high levels of domestic and European economic sentiment.

However, the UCY report said there were “significant downside risks” due to the high levels of indebtedness and NPLs as well as from the reinforcement of the feedback loop between bank and sovereign risk.

“Given the high level of public debt, delays in the implementation of structural reforms (e.g. justice system, public administration), and the introduction of permanent government expenditures based on temporary revenues, may weaken confidence, the sustainability of public finances and growth prospects.”

Other downside risks are associated with a potential slowdown in the euro area, weaker-than-expected growth in the UK due to Brexit negotiations, and losses in the competitiveness of the Cypriot tourist product as it loses out to other destinations.

Positives could be stronger-than-expected demand, mainly due to public and private investment projects, and domestic consumption.

The growth forecast for 2019 has been revised from 3.5% in May to 3.3%, mainly because of weaker economic sentiment in Cyprus and uncertainty regarding growth momentum in Europe.

The UCY’s growth forecasts for 2018 and 2019 are more conservative than the projected rates of 4.1% and 3.9% respectively, published by the Central Bank of Cyprus.

But it’s 2018 growth forecast is more optimistic than the European Commission’s projection of 3.6%; the 2019 growth estimate of 3.3% is the same.