MOODY’S: Cyprus vulnerable to prolonged drop in tourist arrivals

Cyprus is among those EU countries most vulnerable to a sustained drop in tourist arrivals due to the pandemic while it is also a “high credit risk”, international ratings agency Moody’s said.

It made the comments in a note entitled “Negative 2021 outlook driven by significant economic and fiscal uncertainty.”

“Portugal (Baa3 positive) and Greece, the small island nations of Cyprus (Ba2 positive) and Malta (A2 stable) and two of the EU`s largest member states, Spain and Italy, are most vulnerable to a sustained drop in tourist arrivals,” Moody’s said.

It said there is a clear risk that if support measures are withdrawn, either overall or from particular sectors before a sustainable recovery has taken hold, it will trigger further bankruptcies worsening job and income losses.

“A high share of small firms that are financially more constrained means Spain, Italy, France, Greece and Cyprus are particularly vulnerable to further bankruptcies and a rise in unemployment.”

However, “if support measures are extended for too long this could delay sectoral reallocation and increase the number of ‘zombie’ firms, dampening productivity and slowing the recovery.”

Moody’s Investor Service also points out that “credit risks are highest in Italy, Cyprus, Spain and Portugal, given their high economic exposure to the crisis, together with their more limited fiscal space.”

“Sovereigns with elevated debt burdens even before the virus outbreak and facing structural obstacles to stronger growth will face the greatest pressures to act to reverse their rising debt trajectories, in order to minimise these risks.

“This includes sovereigns like Italy, Cyprus, Spain and Portugal, but also France and Belgium.”

The European Commission also estimates that the NGEU recovery plan will generate between 1 and 2 million jobs in the EU.

“Among euro area members, Greece, Spain, Cyprus and Italy are set to be the main beneficiaries relative to the size of their economies.”