EC: Strong growth momentum in Cyprus

7 February 2018




Growth in Cyprus for 2017 will peak at 3.8% and will continue expanding at 3.2% and 2.8% for 2018 and 2019, according to the European Commission (EC), making Cyprus "one of the fastest growing economies in the euro area," while wages, employment and consumption will continue to expand, even if export and tourism may slow down due to capacity constraints.

The EC forecasts a "Strong Growth Momentum" for Cyprus in its new release of the Winter Interim Economic Forecast, published today in Brussels by Commissioner Pierre Moscovici.

The European Commission DGECFIN (the responsible directorate general in its structure that compiled this report) notes that "Cyprus is experiencing a very strong recovery," while "quarterly GDP growth in the third quarter of last year was just as solid as in the first half of the year", furthermore stating that "available ‘soft’ and early ‘hard’ data point to healthy growth in the fourth quarter as well."

The only negative aspect of the interim forecast was inflation that "surprised on the downside", at 0.7% in 2017, mainly driven by energy prices, while prices of processed and non- processed foods and industrial goods declined in the second half of the year.

Even so, after two years in negative territory, "core inflation turned marginally positive in 2017 due to higher service prices linked to increasing wages." Inflation in 2018 is expected "to climb to 1.2%, mainly as a result of higher oil prices, and to 1.3% in 2019, amid higher domestic price pressures stemming from wage dynamics," the report says.

According to the EC, the economy’s robust performance can be attributed "to strong private consumption and solid export growth, as well as some support from public consumption." Moreover, private consumption benefited "from rapidly expanding employment across all sectors (which led to a marked decline in unemployment, including long-term unemployment) and rising compensation per employee." Wages and employment are "expected to continue growing into 2018 and 2019, supporting private consumption," states the EC.

Furthermore, the EC notes that "exports of services were strong, especially in the second and third quarters of 2017, linked to the ongoing tourism boom in Cyprus," stating that "this coincided with a certain rebound in goods exports."

Meanwhile, import growth was "more moderate in the first three quarters of 2017" (compared to 2016, when imports and investment were heavily influenced by one-offs related to ship purchases), but "both investment and imports are expected to have picked up in the last quarter of the year."

After "the surge in 2016", investment "levelled off in 2017." The EC projects it "to pick up in 2018, on the back of buoyant residential construction and plans for large tourism projects."

In 2019, the EC expects "import growth is to strengthen", driven by "rising consumption and investment," while export growth "is set to slow given limited opportunities for further growth, especially in tourism" where "capacity constraints may become binding."

The European Commission presented today its first new issue of what will be twice-yearly interim forecasts, resuming its annual schedule of two-fully fledged forecasts and two much shorter interim forecasts as done until the height of the sovereign debt crisis. The interim forecasts provide an update of GDP and inflation developments for all EU Member States. They will be published in February and July, providing an update of its comprehensive spring and autumn economic forecasts. This interim forecast updates the outlook of the autumn 2017 economic forecast of 9 November 2017.

Article Source: www.stockwatch.com.cy