October 2018


Cyprus Economy Update



This alert covers updates regarding Cyprus' economy, the increase in tourist arrivals and revenue, property sales' contracts, company registrations, deposits and loans, interest rates, the statistics in house prices and construction, public debt figures, unemployment, inflation as well as foreign and retail trade.
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Costas Christoforou CPA, TEP
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GDP Growth Rate, 2nd Quarter 2018

Τhe GDP growth rate in real terms during the second quarter of 2018 is positive and estimated at +3,9% over the corresponding quarter of 2017. Based on seasonally and working day adjusted data, GDP growth rate in real terms is estimated at +3,9% (Source: CYSTAT).
Standard & Poor's raised Cyprus' credit ratings to investment grade

Standard & Poor's upgraded Cyprus' credit ratings to investment grade, after calling them 'junk' for almost seven years. Late on Friday, they raised Cyprus' sovereign credit ratings to `BBB-/A-3` from `BB+/B` with stable outlook.

S&P were one of the first credit rating agencies to downgrade Cyprus' ratings to junk, in January 2012. The rating agency notes that Cypriot authorities have carved out the bad assets of the country`s second-largest bank, paving the way for a significant reduction in the banking sector`s non-performing assets.

S&P further anticipate that strong economic growth through 2021, prudent policy-making, and only moderate state support to the banking system will allow the government to run budgetary surpluses and prompt a reduction in public debt.

S&P forecast that the Cypriot economy will continue to grow at a solid pace through 2021, enabling the government to alleviate its debt burden.

The rating agency projects that the Cypriot economy will grow by 4% in 2018 and by 3% on average between 2019 and 2021. In addition, they added that real GDP growth by 4% in 2018,will allow a return to the economy's 2011 pre-crisis size.

S&P also say that unemployment rate has been on a declining trend, falling from 16% in 2014 to 11% in 2017, then further to 9.5% in the first five months of 2018.

They also note that the Cypriot private sector balance sheet is among the most indebted in Europe, at about 240% of GDP at the end of 2017 and is likely to remain high over the medium term (Source: www.stockwatch.com.cy).
Tourism

On the basis of the results of the Passengers Survey, arrivals of tourists reached 534.847 in August 2018 compared to 523.651 in August 2017, recording an increase of 2,1%. August 2018 had the highest volume of tourist arrivals ever recorded in Cyprus during the specific month.

For the period of January – August 2018 arrivals of tourists totaled 2.719.622 compared to 2.517.887 in the corresponding period of 2017, recording an increase of 8,0% and outnumbering the total arrivals ever recorded in Cyprus during the first eight months of the year.

On the basis of the results of the Passenger Survey, revenue from tourism reached €426,6 million in July 2018, compared to €425,7 million in the corresponding month of the previous year, recording a slight increase of 0,2%.

For the period of January – July 2018 revenue from tourism is estimated at €1.461,5 million, compared to €1.422,1 million in the corresponding period of 2017, recording an increase of 2,8%.

The expenditure per person for July 2018 reached €790,64 compared to €801,63 in the corresponding month of the previous year, recording a decrease of 1,4%. The expenditure per person/per day for July 2018 compared to July 2017 also recorded a decrease of 1,4%. The average length of stay remained the same as last year (9,9 days).

The expenditure per person for the period of January – July 2018 reached €668,95 compared to €713,08 in the corresponding period of the previous year, recording a decrease of 6,2%. The expenditure per person/per day for the period of January – July 2018, compared to the period of January – July 2017, also recorded a decrease of 4,1% (from €77,51 to €74,33) (Source: CYSTAT).
Economic sentiment in Cyprus improves

Economic sentiment in Cyprus registered its third monthly growth in September, mainly owing to increased confidence in services, industry and consumers. The Economic Sentiment Indicator (ESI) of the University of Cyprus Economic Research Centre (ERC) in September registered an increase of 3.4 points, reaching 115 points.

According to ERC, the Services Confidence Indicator increased as a result of improved assessments of past business situation and past demand, and significant upward revisions in demand expectations.

ERC added that the Retail Trade Confidence Indicator decreased due to a deterioration in firms' assessments of past sales and current stock volumes, and downward revisions in sales expectations.

The Construction Confidence Indicator remained unchanged as both of its components (current level of order books and employment expectations) stayed at about the same levels as in the previous month.

Improved assessments of current orders and stock volumes of finished products, and upward revisions in production expectations, pushed the Industry Confidence Indicator to increase upward.

The increase in the Consumer Confidence Indicator was driven by upward revisions in consumers' expectations regarding their financial conditions, savings and the future economic conditions in Cyprus (Source: www.stockwatch.com.cy).
General government surplus at €514.7 million

Cyprus general government doubled its surplus for the period of January – July 2018 which amounted to €514.7 million (€217 million in the respective period of 2017) or 2.6% of GDP, mainly due to the surge in VAT revenue which spiked by 22% year on year.

According to the preliminary fiscal results by the Cyprus Statistical Service, total revenue in the first seven months of 2018 increased by an annual 9.1% or €374 million, reaching €4.50 billion owing to the VAT revenue. Total expenditure for the period of January – July 2018 also increased by €77 million or 2%, compared with the respective period of 2017 amounting to €3.98 billion.

All revenue categories with the exception of interest rate revenue and current transfers increased in the seven months of 2018. Total taxes on production increased by 13.6% amounting €1.90 billion, of which VAT revenues increased by 22% year on year amounting to €1.19 billion.

Revenue from social payments increased by 9.9% in the first seven months of 2018, reaching €1.05 billion. Revenue from income and wealth tax recorded the smallest annual increase, with revenue amounting to €958 million in the period of January – July 2018.

Total general government expenditure in the period of January – July of 2018 reached €3.98 billion marking an increase of 2.0%, compared with the respective period of 2017. Welfare spending increased by 2.8% reaching €1.48 billion, while the government wage bill increased by 2.6% year on year amounting to 1.30 billion.

Capital payments accelerated by €3 million to €175 million. The rest spending categories registered decrease, the largest of which was in interest rates which declined by €17 million to €313 million. Capital transfers declined by €2.7 million to €27.2 million, while capital transfers declined marginally to €263 million (Source: www.stockwatch.com.cy).
Deposits and Loans

Total deposits in August 2018 recorded a net increase of €176.3 million, compared with a net increase of €796.4 million in July 2018, according to data released last Thursday by the Central Bank of Cyprus.

The annual growth rate reached 3.9%, compared with 45% in July 2018. The outstanding amount of deposits reached €51.1 billion in August 2018. Total loans in August 2018 exhibited a net decrease of €187.8 million, compared with a net decrease of €74.7 million in July 2018.

The annual growth rate stood at -0.8%, compared with -0.6% in July 2018. The outstanding amount of total loans reached €45.9 billion in August 2018.

Total new loans dropped to €211,0 million in August 2018, from €284,1 million in the previous month, according to data released last Thursday by the Central Bank of Cyprus.

The Central Bank reported that new loans for consumption fell to €12,7 million, compared with €17,4 million in the previous month, whereas new loans for house purchase were down to €71,7 million, from €73,9 million.

New loans to non-financial corporations for amounts up to €1 million decreased to €35,5 million, from €41,3 million in July, while new loans to non-financial corporations for amounts over €1 million recorded a decline to €73,5 million, compared with €134,1 million in the previous month. The main developments in interest rates on new deposit and loan contracts, including contracts which were renegotiated, are summarised as follows:

The figures showed that the interest rate on deposits from households with an agreed maturity of up to one year were marginally decreased to 0.84%, from 0.85% in the previous month. The corresponding interest rate on deposits from non-financial corporations rose to 0.62%, from 0.55% in July.

The interest rate on consumer credit increased to 3.84%, compared with 3.76% in the previous month, while the interest rate on loans for house purchase fell to 2.40%, from 2.47% in the seventh month of the year.

The interest rate on loans to non-financial corporations for amounts up to €1 million dropped to 3.44%, compared with 3.61% in the previous month. The interest rate on loans to non-financial corporations for amounts over €1 million was down to 2,73%, compared with 3,52% in the previous month (Source: www.stockwatch.com.cy).
Non-performing facilities increase in May

Non-performing facilities (NPFs) increased by €14 million in May, to €19.930 billion from €19.916 billion in April, as the Central Bank of Cyprus reported on Friday.

March registered the largest decrease totaling €2.074 million, in the first quarter of 2018. NPFs stood at €19.9 billion in the third month of the year. Between December 2014 and March 2018 there has been an overall decrease in NPFs of €7.4 billion or 27.1%.

Central Bank figures showed that total facilities increased by €262 million, from €46.386 million at end of April 2018 to €46.648 million in May 2018, leading to a drop in the ratio of NPFs to total facilities from 42.9% at the end of the fourth month of the year to 42.7% in May. The coverage ratio increased marginally to 48.6% at the end of May 2018, from 48.5% in April.

Total restructured facilities at the end of May 2018 amounted to €11.127 million, of which €8.284 million are still classified as NPFs, partly due to the definition of NPFs, based on which a restructured NPF remains under observation within the NPF category for a further period of at least 12 months.

Households held the largest part of NPFs, amounting to €10.776 billion or 53.7% of total NPFs, whereas enterprises held NPFs of €8.836 billion or 48.6% of total NPFs (Source: www.stockwatch.com.cy).
Cyprus raises 1.5 billion euro from ten-year bond

The Republic of Cyprus has issued on Tuesday a ten-year European Medium-Term Note (EMTN) which was oversubscribed by more than five and a half times. The Republic raised €1.5 billion with an interest rate of 2.4% (Source: www.stockwatch.com.cy).
Trade deficit at € 2.4 billion

The first estimate for euro area (EA19) exports of goods to the rest of the world in July 2018 was €194.6 billion, an increase of 9.4%, compared with July 2017 (€177.8 billion). Imports from the rest of the world stood at €177.1 billion, a rise of 13.4% compared with July 2017 (€156.2 billion).

As a result, the euro area recorded a €17.6 bn surplus in trade in goods with the rest of the world in July 2018, compared with +€21.6 bn in July 2017. Intra-euro area trade rose to €162.3 bn in July 2018, up by 9.3% compared with July 2017 (Source: www.stockwatch.com.cy).
Building Permits

The Statistical Service announced that the number of building permits authorised by the municipal authorities and the district administration offices during June 2018 stood at 514. The total value of these permits reached €133,7 million and the total area 131,2 thousand square meters. These building permits provide for the construction of 506 dwelling units.

During the period January – June 2018, 3.110 building permits were issued, compared to 2.870 in the corresponding period of the previous year. The total value of these permits increased by 20,4% and the total area by 26,2%. Τhe number of dwelling units recorded an increase of 25,1%. Building permits constitute a leading indicator of future activity in the construction sector (Source: CYSTAT).
House Price Index

According to preliminary estimate of the Statistical Service, the HPI for the second quarter of 2018 amounts to 103,98 units. Compared to the first quarter of 2018, the index increased by 0,6% while compared to the corresponding index of the previous year, the index increased by 1,2% (Source: CYSTAT).
Inflation

In September 2018, the Consumer Price Index increased by 0,87 units to 101,85 units, compared to 100,98 units in August 2018. Compared to September 2017, the CPI is increased by 3,1% while for the period January - September 2018, the CPI is increased by 1,1%, compared to the corresponding period of the previous year.

In the twelve-month period from August 2017 to September 2018, in comparison to the period from August 2016 to September 2017, the annual average rate of change of the CPI was 0,8%. The corresponding rate in the previous twelve-month period was 0,3% (Source: CYSTAT).
Unemployment

The unemployed persons, registered at the District Labor Offices on the last day of September 2018, reached 21.399 persons. Based on the seasonally adjusted data that show the trend of unemployment, the number of registered unemployed for September 2018 decreased to 25.258 persons, in comparison to 25.694 in the previous month.

In comparison with September 2017, a decrease of 6.552 persons or 23,4% was recorded, which was mainly observed in the sectors of trade (a decrease of 1.270 unemployed persons), construction (a decrease of 813), accommodation and food service activities (a decrease of 729), manufacturing (a decrease of 708), public administration (a decrease of 580), transportation (a decrease of 257) and to newcomers in the labor market (a decrease of 1.550) (Source: CYSTAT).
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