April 2017

Cyprus Economy Update

This alert covers updates regarding Cyprus' GDP growth rate, the increase in tourism revenue, company registrations, the increase in house prices and property sales, unemployment, the deposits in the Cyprus banking system, the status of non-performing loans, inflation, the contracts for Cyprus EEZ's 3rd licensing round and Cyprus' Standard & Poor's credit rating.
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Costas Christoforou CPA, TEP
General Manager costas.christoforou@cpm.com.cy

Rodoula Demetriades MS, CPA
Senior Manager
Business Development rodoula.demetriades@cpm.com.cy

Cyproman Services Ltd

GDP growth at 2.9% in Q4 2016

Τhe GDP growth rate in real terms during the fourth quarter of 2016 is positive and estimated at +3,0% over the corresponding quarter of 2015. Based on seasonally and working day adjusted data, GDP growth rate in real terms is estimated at +2,9%.

The increase of the GDP growth rate is mainly attributed to the sectors: "Hotels and Restaurants", "Professional, Scientific and Technical Activities", "Retail and Wholesale Trade", "Manufacturing", and "Construction". Negative growth rate was recorded by the sector "Financial Service Activities" (Source: CYSTAT).
Tourism arrivals and revenue

Arrivals of tourists reached 82.209 in February 2017 compared to 65.988 in February 2016, recording an increase of 24,6%. For the period January- February 2017, arrivals of tourists totaled 144.820 compared to 114.596 in the corresponding period of 2016, recording an increase of 26,4%.

The United Kingdom and Russia constitute the main sources of tourism for Cyprus for February 2017, with proportions of 33,5% and 17,6% respectively, while arrivals from Greece comprise 13,2% and from Israel 6,8% of total arrivals.

With regards to revenue, on the basis of the results of the Passenger Survey, revenue from tourism reached €35,4 mn in January 2017 compared to €29,1 mn in the corresponding month of the previous year, recording an increase of 21,6%(Source: CYSTAT).
Company registrations

Applications for company registrations in Cyprus have recorded an increase in March 2017, according to data published by the Department of the Registrar of Companies and Official Receiver. Specifically, the applications for registration have increased by 8,6% in the third calendar month of 2017 to 1.308, compared to 1.204 in March 2016. In February 2017 registrations had recorded an annual decrease of 13,4%. Moreover, in the first Quarter of 2017, applications for company registrations have increased by 2,8% to 3.315 compared to 3.226 in the first Quarter of 2016.

Registered companies in Cyprus currently amount to 208.493. In 2016, applications for company registrations had increased by 20,5% reaching 13.541 compared to 11.234 in 2015 (Source: www.stockwatch.com.cy).
House prices

House prices, as measured by the House Price Index, rose during the 4th quarter of 2016 by 3,1% in Cyprus compared to the previous quarter and by 2,8% compared to the same quarter of the previous year, according to Eurostat. Among the Member States and compared with the previous quarter, the highest increases were recorded in Malta (+6,0%), the Czech Republic (+4,7%), the Netherlands (+3,2%) and Cyprus (+3,1%) (Source: www.stockwatch.com.cy).
Increase in property sales

The number of sale contracts for properties in Cyprus submitted to the Land Registry department has risen to the highest level in six years in March 2017, according to information released by the department of Lands and Surveys.

The number of sale contracts submitted to the Lands and Survey Department in March 2017 marked a 16% increase, reaching 626 compared to 539 in March 2016. This was the highest level in the last six years. In March 2010, the number of sale contracts submitted were 792.

For the period January-March 2017, the number of sale contracts reached 1505, compared to 1.367 in the corresponding period of 2016, recording an increase of 10,0%. The number of property transfers in March 2017 rose to 1.249 from 1.090 last March and concerned 1.491 plots that were valued at €453.119.319 (Source: www.stockwatch.com.cy).

The unemployed persons, registered at the District Labour Offices on the last day of March 2017, reached 39.088 persons. Based on the seasonally adjusted data that show the trend of unemployment, the number of registered unemployed for March 2017 decreased to 36.420 persons in comparison to 37.068 in the previous month.

In comparison with March 2016, a decrease of 3.695 persons or 8,6% was recorded which was mainly observed in the sectors of public administration (a decrease of 1.325 unemployed persons), construction (a decrease of 1.223), manufacturing (a decrease of 597) and trade (a decrease of 411). An increase of 430 unemployed persons has been observed in the sector of Financial and Insurance activities (Source: CYSTAT).

Total deposits in February 2017 recorded a net increase of €174,9 million, compared with a net increase of €148,8 million in January 2017, according to data released by the Central Bank of Cyprus. The annual growth rate stood at 6,2%, compared with 6,0% in January 2017. The outstanding amount of deposits reached €49,3 billion in February 2017, compared with €49 billion in January 2017 and €46,2 billion in February 2016.

Total loans in February 2017 exhibited a net increase of €139,1 million, compared with a net decrease of €86,4 million in January 2017. The annual growth rate stood at -6,3%, compared with -6,6% in January 2017. Τhe outstanding amount of loans reached €55,2 billion in February 2017, compared with €54,9 billion in January 2017 and €59,2 billion in February 2016 (Source: www.stockwatch.com.cy).
Decrease in Non-Performing Facilities

During the fourth quarter of 2016 there was a decrease of €452 million in total NPFs, with the largest part of the fall exhibited in November and December 2016 by €211 million and €204 million, respectively.

According to data released by the Central Bank of Cyprus (CBC), total facilities increased by €768 million during the same period, reaching €50.361 million. This has resulted in a drop in the ratio of NPFs to total facilities from 48,7% to 47%.

It must be noted that, in the period from 31 December 2014 to 31 December 2016, there has been an overall decline in NPFs of €3,7 billion or 13,4%. The coverage ratio has risen to 41,2% at end-December 2016 compared with 38,8% at the end of September 2016.

The downward trend in NPFs can be attributed to increased repayments, restructurings successfully completed by the end of the observance period and reclassified as performing facilities, write-offs as well as settlement of debt through swaps with immovable property that is expected to be sold with the aim of a faster cash collection (Source: www.stockwatch.com.cy).

In March 2017, the Consumer Price Index increased by 0,89 units to 99,76 units compared to 98,87 units in February 2017. Compared to March 2016, CPI is increased by 1,9% while for the period between January and March 2017, CPI is also increased by 1,4% compared to the corresponding period of the previous year.

In the twelve-month period from April 2016 to March 2017, in comparison to the period from April 2015 to March 2016, the annual average rate of change of the CPI was -0,6%. The corresponding annual average rate of change of the CPI in the previous twelve month period was -2,2% (Source: CYSTAT).
Cyprus EEZ's 3rd licensing round

The Cyprus government and the consortium of companies ExxonMobil Corporation and Qatar Petroleum signed on the 5th of April 2017 the exploration and production sharing contract for Block 10 of the Exclusive Economic Zone of the Republic of Cyprus. The contracts were signed in the presence of the Ministers of Energy, Foreign Affairs, Finance and Labour of the Republic of Cyprus. Before the signing of the contracts, the representatives of the consortium had a meeting with Cypriot President Nicos Anastasiades at the Presidential Palace in Nicosia.

The contract includes a commitment from the Exxon Mobil-Qatar Petroleum consortium to acquire 3-D seismic data, drill two exploration wells in the first license period and work with the government of Cyprus to build skills and strengthen understanding of the petroleum business through focused training programs. The companies have begun planning for drilling operations and intend to drill a first exploration well in 2018 (Source: www.stockwatch.com.cy).

The consortium of ENI Cyprus Limited and Total E&P Cyprus B.V. are licensed for Block 6, while ENI Cyprus Limited for Block 8. The contracts for exploration and production sharing for blocks 6 and 8 were signed on the 6th of April. Exploratory drilling is set to take place in block 11 of Cyprus' Exclusive Economic Zone (EEZ) in the first two weeks of July (Source: www.cna.org.cy).
Standard & Poor's upgrades Cyprus

Standard & Poor`s upgraded its assessment of Cyprus to `BB+` from `BB`, with a stable outlook. At the same time, it affirmed its `B` foreign and local currency short-term sovereign credit ratings.

S&P said that it expected the Cypriot economy will expand by about 2,7% this year and maintain average annual growth at just under 2,5% between 2018-2020.

It explained that the upgrade reflected its views of Cyprus` stronger-than-expected economic growth and fiscal progress. "Under our projections, general government debt will continue to decline even as the private sector deleverages. We estimate that net general government debt will drop to below 90% of GDP by the end of 2018 versus slightly under 100% of GDP at end-2015" it said.

S&P estimates that after expanding 2,8% last year, Cyprus` economy will continue to post solid GDP growth of between 2,0% and 3,0% over its forecast horizon and that the unemployment rate, 13,3% at year-end 2016, will fall below 12,0% by 2018.

In the light of Cyprus` strong economic performance and previous budgetary consolidation efforts, the rating agency estimates the government`s budgetary position to have ended in a small surplus (0,1% of GDP) in 2016, outperforming its own target by 0,4 percentage points.

It noted that the stable outlook balances its view of the upside rating potential due to improvement in economic and budgetary performance and reduction of currently high levels of NPLs against the risk of weaker growth, risks to banking sector stability and budgetary policy deviation (Source: www.stockwatch.com.cy).
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