The European Commission’s downward economic forecast for Cyprus is in line with the government’s low expectations as the economy will not be making a full recovery in 2021 as initially expected.
According to the EC, real GDP is forecast to contract by 7.75% in 2020, a decrease of 0.3% compared to EC’s May forecast, and to partially recover in 2021 by 5.25%, meaning the economy will not be reaching pre-COVID-19 levels.
The European economy has also suffered more than originally expected, while the Eurozone in 2020 will suffer a deep recession of 8.7%, which is 1 percentage point more than in the May forecast.
Finance Minister Constantinos Petrides said that the EU report reaffirms that “the crisis is not over and that recovery will be difficult and uncertain, as is the pandemic itself, including efforts to discover a vaccine, which are directly linked to course of the economy”.
“The impact of the pandemic on unemployment and businesses will become apparent around the end of 2021.
That is why we feel it is necessary to continue following sound and prudent political-economic management at the national level”.
Petrides argued that the need for rapid implementation of the single European recovery plan is now more urgent than ever.
Issuing its summer economic forecast, the European Commission’s expects significant risks to the Cyprus economy as a result of the coronavirus pandemic and its impact to tourism.
Tourism is expected to generate just 25% of last year’s revenues, pushing unemployment figures upwards.
According to the European Commission’s forecast, economic growth in Cyprus for the first quarter of 2020, slowed down considerably, 0.8% (year-on-year), reflecting a significant fall in external demand for goods and tourism”.
“Economic sentiment and expectations in services are at a historic low, despite a slight improvement in June,” the Commission stated.
The report noted that the COVID-19 pandemic is expected to “significantly dampen international demand for tourism as tourist arrivals and revenues decreased by 46.5% and 52.4%, respectively in the first quarter of 2020 (year-on-year)”.
“Further prolongation of the travel restrictions from the UK and Russia – Cyprus’ main tourist markets – could have a strong negative effect.
Furthermore, the sharp increase in unemployment in services linked to tourism and the increased risk of bankruptcies does not bode well for the recovery in 2021,” the forecast notes.
The contribution of net exports to GDP growth “is set to be significantly negative in 2020 and to turn positive in 2021, albeit not recovering fully to its pre-pandemic levels”.
“Cyprus was on a solid growth path before the global outbreak of COVID-19 but the pandemic, and the confinement measures that followed, have dramatically changed the picture.”