The Macroeconomic Forecasting Group of the University of Nicosia Business School expects Cyprus GDP in the third and fourth quarters to reach EUR 4.10 bln (CYP 2.45 bln) and EUR 3.97 bln (CYP 2.32 bln), respectively, at current prices while it is expected to reach €15.91 billion (CYP 9.31 billion) for the full year 2008.
In 2006, GDP reached EUR 14.44 bln at current prices, and 15.57 bln in 2007 according to the government statistical service, Cystat.
An increase of 2.2% is, therefore, expected between 2007 and 2008 as compared to an increase of 8.1% between 2006 and 2007, according to the authors of the University of Nicosia MFG report, Haritini Tsangari, Spyros Hadjidakis and Marios Christou.
“The above data indicate a significant slowdown in the rate of growth, at current prices, if we take into account that the rates of growth between 2005 and 2006 as well as 2006 and 2007 were 7.3% and 8.1% respectively,” the MFG report said.
RATE OF GROWTH (current prices)
YEAR GDP (€ billion) CHANGE (%)
2008 15,91 est.
2007 15,57 2.1% est
2006 14,44 8.1%
2005 13,62 7.3%
The model’s forecasts for the first two quarters of 2008 were EUR 3.50 bln and 4.25 bln, respectively, while the actual Cystat figures for the same quarters were EUR 3.92 bln 4.34 bln.
“While a deviation can be observed during the first quarter, the forecasted GDP value in the second quarter is quite accurate,” the report explained, adding that “the observed deviation in the first quarter is of a rather technical nature and can be largely explained by the variables of the model and the historical data as well as the time lags used. The model has also been updated to incorporate the conversion of the Cyprus Pound to the Euro in January 2008.”
Based on the model’s forecasts and the actual figures of the Statistical Service, the rate of growth of the economy at constant prices (i.e., real growth) is expected to fall by 0.01% between the third quarter of 2007 and the third quarter of 2007 and by 0.07% between the fourth quarter of 2007 and the fourth quarter of 2008.
The above calculations are based on the average Consumer Price Index during the first nine months of 2008 and on an average inflation rate of 4.7% between 2007 and 2008. A lower inflation rate during the remaining three months of 2008 can improve the performance of the Cyprus economy in the last quarter and result in a marginally positive real growth.
Generally, the forecasts of the MFG model are worrisome because of the expected fall in real growth. Tentative conclusions lead to a highly probable negative impact of the global financial crisis on the real sector of the Cyprus economy. Despite the fact that the banking sector in Cyprus is not as vulnerable as the banking and financial systems of many other countries, the global crisis does seem to affect significantly the real economy because of its impact on variables included in the model such as the construction industry, tourism, energy production, exports and imports. The Cyprus economy is not immune from the global financial crisis given its structure and openness. What should be emphasized is the prediction for imminent negative impact while such an event was expected with a longer time lag.
