COVID19: Cyprus economy on slow recovery path

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Cyprus’ economy was on the recovery path in September and October after reaching historically low levels due to the pandemic with year-over-year growth rate remaining relatively stable.

Economists also warn that more lockdowns or restrictions on economic activity would have a negative impact on future growth prospects for Cyprus.

A report compiled by University of Cyprus Economic Research Centre and Hellenic Bank’s research unit said that recovery of the Cyprus Composite Leading Economic Index (CCLEI) continued in September and October 2020.

According to the report, the CCLEI recorded a decrease of 3.9% (from year to year) in September reaching a level of 102.3, after the year-over-year decline of 5.1% in August and 6.1% in July.

“The CCLEI flash estimate in October remained at the same level of the year-over-year growth rate in September reflecting the uncertain economic environment and in particular the pandemic’s resurgence internationally,” said the report.

It said although the Economic Sentiment Indicator (ESI) in the euro area, including Cyprus, improved in the third quarter of 2020 compared to the previous quarter, it remained at the same levels in October.

“Despite its seasonality, tourism continues to be a brake on the recovery of the CCLEI, since in September and October tourist arrivals continued to be significantly reduced compared to the corresponding months of the previous year”.

Economists argue, a number of domestic variables continue to have a positive effect on the CCLEI, as in previous months.

According to the report, estimates indicate the year-over-year improvement in the volume of retail sales and electricity production, as well as in the total number of property sales contracts in September.

“Credit card transactions show a year-over-year improvement reflecting both the gradual improvement in economic activity and the continuing shift to electronic payments as a precautionary measure against the pandemic.”

“The continuing gradual improvement of the economy from its historically low levels of growth, while the fact that October 2020 remained at the same level as September reflects the uncertain economic environment due to the dynamic evolution of the pandemic”.

The forecasts are accompanied by elevated uncertainty as economic outcomes largely depend on the evolution of the pandemic, in particular controlling the new wave of infections in Cyprus and abroad.

The CCLEI Index is designed to provide early warning signals for the turning points of business cycles such as early evidence of a shift in economic activity.

This index comprises leading economic activity variables which tend to lead to changes in the overall economic activity.

The components of the index include local and international leading indicators such as the Brent Crude oil price, the euro area Economic Sentiment Indicator (ESI), the total sales of contracts, tourist arrivals, the value of electronic card transactions, the retail trade sales turnover volume index, and the volume index of electricity production.