COVID19: Cyprus economy to enter ‘serious recession’

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Cyprus Central Bank Governor, Constantinos Herodotou warned the economy will experience a “serious recession” in 2020 due to the coronavirus pandemic fallout but for how long is unknown.

“The economy’s prospects for 2020 and afterwards are dramatically overshadowed by the negative developments of the coronavirus pandemic,” Herodotou said in the Central Bank’s annual report for 2019.

Herodotou said the institution’s December 2019 projections had noted general downward risks for the Cypriot economy which could decelerate its future course.

Before the pandemic, Cyprus was vulnerable to geopolitical developments like Brexit, trade wars, its high level of private debt and challenges faced by the banking sector.

The bank governor these risks “we will have to face even after the pandemic but at an obviously greater degree.”

According to Herodotou progress made in 2019 supported the fast and coordinated actions of the government and the Central Bank in dealing with the economic impact of the COVID-19 crisis.

He said the government was in a position to financially reduce the negative impact of the cost to households, businesses and the real economy.

“After the crisis is over we will have to remain focused in the effort of full consolidation of the economy and of our banking system.”

Herodotou said this “will lay the foundations on which a long-term and sustainable growth course of the Cypriot economy can be based on.”

The Central Bank’s projections in December expected slightly lower growth rates for 2020-22.

“This projection has been turned upside down by the coronavirus pandemic and in Cyprus, on the basis of which it is expected that 2020 will record a serious recession.”

“Despite unprecedented developments and very negative short-term impact, we must consider how much worse the situation would be had the progress of 2019 not been achieved both in macro-economic and fiscal policy issues as well as stability of the banking and financial sector.”

In its annual report, the Central Bank says the pandemic “constitutes an extremely serious internal and external shock which is affecting demand”.

“The financial impact cannot be quantified with precision for the time being…given that there is insufficient economic data for 2020, nor can the pandemic’s duration be projected.”

Nevertheless, the Central Bank said a “significantly downward review” of projections for 2020 will occur, in accordance with the estimates of all international organisations for a deep recession at international level.

“The question is not whether a recession will take place but how extensive it will be.”