The Cypriot economy is forecasted to continue to grow at a robust pace in 2018 and next year, the University of Cyprus Economic Research Centre said Tuesday.
In 2018, real GDP is projected to increase at 3.9% while next year growth will down as GDP is projected to grow by 3.5%. UCY’s 2018 GDP growth outlook of 3.9% is unchanged from the July forecast but the 2019 prediction is up from 3.3%
The main drivers of the UCY outlook in 2018 and 2019 include “vigorous growth in domestic activity, improvements in the domestic labour market, strong fiscal performance in Cyprus and conducive domestic financial conditions (e.g. low lending interest rates, deleveraging, expansion of domestic deposits and credit).
The mild slowdown in growth projected for 2019 is driven by the recent decline in economic sentiment, the pickup of energy inflation, the recent slowdown in the EU and European interest rates and spreads which reflect EU and euro area uncertainties.
UCY economists said the downside risks to the outlook were the “high levels of private debt and non-performing loans (NPLs), despite recent progress, pose risks to the soundness of the banking system, economic confidence and growth prospects”.
It said the high level of public debt together with the stronger connection between bank and sovereign risk, after the resolution of the Cyprus Cooperative Bank, “renders Cyprus vulnerable to shocks”.
“Delays in the implementation of structural reforms (e.g. judicial system, public administration), given the high level of public debt and problematic loans, may dent economic confidence, the sustainability of public finances and growth.”
Uncertainty created by Italy’s EU budget woes, with possible negative effects on the borrowing costs of other vulnerable euro area countries; weaker-than-expected growth in the UK due to a failure of Brexit negotiations; competitiveness pressures on Cyprus tourism, are all possible obstacles.
“Upside risks to the outlook are associated with faster-than-forecasted growth in Russia as well as with the implementation of private investment projects (e.g. investments relating to tourism, property developments, energy) and public investments,” said UCY.
The growth forecast for 2018 in UCY’s October outlook is in line with the projections of 4% released by the IMF and the Ministry of Finance.
But for 2019, the growth forecast is more conservative than the projected rates of 4.2% and 3.8% given by the IMF and the Ministry of Finance, respectively.
