Volatile geopolitical arena threatens economy

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Uncertainty continues to prevail over the economy, as economists warn that things are not expected to improve as the highly volatile geopolitical environment continues to cast its shadow.

A report compiled by the University of Cyprus Economic Research Centre and Hellenic Bank said the Cyprus Composite Leading Economic Index1 (CCLEI) recorded a year-over-year decrease of 2.6% in October.

The drop is in line with a trend building, as it follows the year-over-year decreases of 2.6% in September and 2.1% in August (based on the recent and revised data).

“The Economic Sentiment Indicators (ESIs) in both Cyprus and the euro area recorded a considerable year-over-year drop in October, with the ESI in the euro area reaching its lowest level since November 2020,” notes the report.

It said confidence has deteriorated across business sectors, with “the economic climate noting the greatest deterioration in the services sector for Cyprus and the consumption sector for the euro area”.

At the same time, the international Brent Crude oil price continues to contribute a negative year-over-year rate of the CCLEI.

In contrast, the acceleration recorded in the year-over-year growth rate of the remaining components of the CCLEI in October, such as the construction industry and tourism, has restrained the further decline of the Index.

“The total number of property sales contracts, the value of credit card transactions, the retail sales volume and tourist arrivals contribute to the short-term strengthening of the Cypriot economy,” said the report.

Economists warned that the ongoing coronavirus pandemic had impacted the year-on-year CCLEI growth, arguing that a potential further deterioration of COVID-19 data in the winter may make matters even more.

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.