Cyprus Country Risk Report

Published 22 July 2015 | Quarterly

  • 48 pages
  • Instant access to your report online and PDF format through your account library
  • Includes 3 free updated quarterly reports
$1,195.00
Cyprus Country Risk Report

Core Views

  • Cyprus is past the worst of its brutal recession. Regardless, the economy will continue to be challenged by a weak external environment, public sector austerity, competitive pressures on wages and disposable income, and the deleveraging of the banking sector.

  • Negotiations between Greek and Turkish Cypriots on the 40-year-old 'Cyprus problem' are reaching a crucial phase. The odds of a deal to reunify the island are higher now than they have been since the last major peace effort ended in 2004, though the next few months will be the most significant in signalling a true turning point.

  • Although the Cypriot government's fiscal consolidation plan will pay dividends in terms of long-term growth and reducing the public debt overhang, it has come at the cost of weakening near-term economic activity.

Major Forecast Change

  • We have lowered our 2015-16 current account balance forecasts to an average -3.9% of GDP from -1.0% previously, to reflect rising imports amid the economic recovery.

Key Risks To Outlook

  • Cyprus' status as a small, open economy leaves it vulnerable to external risks, particularly from key trading partners Russia and Greece, which are each experiencing severe difficulties.

  • Given the sharp decline in major categories of expenditure, particularly fixed investment, there is the potential for a stronger rebound than we are currently pencilling in. We reiterate, however, that the economy and the components of expenditure are likely to remain well below their peaks in real terms for several years to come.

Macroeconomic Forecasts (Cyprus 2013-2016)
Indicator 2013 2014e 2015f 2016f
BMI/Eurostat
Real GDP growth, % y-o-y -5.1 -2.3 0.2 1.5
Nominal GDP, EURbn 18.1 17.5 17.7 18.2
Consumer price inflation, % y-o-y, eop 0.4 -0.3 -0.3 1.2
Exchange rate EUR/USD, eop 0.72 0.83 0.98 0.91
Budget balance, % of GDP -4.9 -8.8 -1.4 0.2
Executive Summary
5
Core Views
5
Major Forecast Changes
5
Key Risks To Outlook
5
Chapter 1: Political Outlook
7
SWOT Analysis
7
BMI Political Risk Index
7
Domestic Politics
8
Reunification Looks Increasingly Possible
8
TABLE: POLITICAL OVERVIEW
8
Long-Term Political Outlook
9
Cyprus Problem, Economy The Dominant Issues
9
Chapter 2: Economic Outlook
11
SWOT Analysis
11
BMI Economic Risk Index
11
Economic Activity
12
Slower But More Sustainable Growth Ahead
12
TABLE: Private Consumption Forecasts
12
tABLE: Government Consumption Forecasts
12
TABLE: Fixed Investment Forecasts
13
TABLE: Net Exports Forecasts
13
Fiscal Policy
15
Policy To Remain Tight To 2017
15
TABLE: Fiscal Policy
15
Balance Of Payments
16
Official Lifelines To Mitigate External Vulnerability
16
TABLE: Current Account
17
Regional Exchange Rate Policy
18
EUR: The Worst Is Almost Over
18
TABLE: BMI Eurozone Currency Forecasts
19
Regional Economic Outlook
20
Grexit: Contagion Risks Relatively Limited
20
Chapter 3: 10-Year Forecast
25
The Cypriot Economy To 2024
25
Long Road To Recovery
25
TABLE: Long-Term Macroeconomic Forecasts
25
Chapter 4: Operational Risk
27
SWOT Analysis
27
Operational Risk Index
27
Operational Risk
28
TABLE: Developed States - Labour Market Risk
28
TABLE: Developed States - Logistics Risk
31
TABLE: Developed States - Crime And Security Risk
34
TABLE: Developed States - Trade And Investment Risk
36
Chapter 5: BMI Global Macro Outlook
41
Global Outlook
41
Event Risk Mounting But Manageable
41
Table: Global Assumptions
41
Table: Developed States , Real GDP GrowtH, %
42
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
42
Table: Emerging Markets , Real GDP Growth , %
43

The Cyprus Country Risk Report helps businesses with market assessment, strategic planning and decision making to promote growth and profitability in Cyprus. It is an essential tool for CEOs, Chairmen, Finance Directors/CFOs, Managing Directors, Marketing/Sales Directors with commercial interests in this emerging market.

An influential new analysis of Cyprus's economic, political and financial prospects through end-2019, just published by award-winning forecasters, BMI Research.

Key Uses

  • Forecast the pace and stability of Cyprus's economic and industry growth through end-2019.
  • Identify and evaluate adverse political and economic trends, to facilitate risk mitigation.
  • Assess the critical shortcomings of the operating environment that pose hidden barriers and costs to corporate profitability.
  • Contextualise Cyprus's country risks against regional peers using BMI's country comparative Risk Index system.
  • Evaluate external threats to doing business in Cyprus, including currency volatility, the commodity price boom and protectionist policies.

The Cyprus Country Risk Report by BMI Research includes three major sections: Economic Outlook, Political Outlook and Operational Risk.

Economic Outlook:

How will the Cyprus' economic policy-making and performance impact on corporate profitability over 2015-2019?

BMI provides our fully independent 5-year forecasts for Cyprus through end-2019 for more than 50 economic and key industry indicators. We evaluate growth, and also forecast the impact of economic management.

Economic Outlook Contents

The Cyprus Country Risk Report features BMI's forecasts with supporting analysis for 2015 through to end-2019, set against government views and BMI's evaluation of global and regional prospects.

Key Areas Covered:

Data:

  • Full 10-year forecasts with data - for key macroeconomic variables including GDP (real growth and per capita), population, inflation, current account balance and the exchange rate.
  • BMI's comprehensive Risk Index system - rates each country worldwide for economic and political risk, and rates the business environment, within a global and regional context.

Written Analysis:

  • Economic Activity - real GDP growth, employment, inflation, consumption (retail sales and confidence).
  • Balance of Payments - trade and investment, current and capital account.
  • Monetary Policy - interest rate trends (bank lending and deposit rates) and inflation (producer price and consumer price).
  • Exchange Rate Policy - currency controls, foreign investment flows, exchange rates and foreign exchange reserves.
  • Fiscal Policy - macroeconomic strategy and policies, government finance and tax reforms.
  • Foreign Direct Investment - approvals, inflows and climate.
  • External Debt - debt profile (short and long-term plus public and private sector obligations).
  • Global Assumptions - forecasts for each year to end-2019 covering: major commodities, growth in key regions, inflation, and interest and exchange rates, in the United States, Japan, China and the eurozone.

Key Benefits

  • Rely upon BMI's 100% independent forecast scenarios for Cyprus and underlying assumptions - we take no advertising and are privately-owned.
  • Exploit the benefits of BMI's comprehensive and reliable macroeconomic database on Cyprus, sourced and fully maintained by BMI from an extensive network of private sector, government and multilateral contacts.
  • Gain key insights into the current and future direction of government economic policy, which could significantly affect your company's business prospects, from BMI's team of analysts and economists.

Political Outlook:

What are the political risks to doing business in Cyprus over the next 5-years?

BMI's Cyprus country Risk Index evaluates the short- and medium-term threats to political stability.

Political Outlook Contents

  • SWOT Analysis for the Cyprus Market - Political Strengths, Weaknesses, Opportunities and Threats facing Cyprus.
  • Political Stability and Risk Assessment - BMI's Risk Index assesses explicit short- and long-term risks to political stability; latest positioning and trends for Cyprus's risk are compared with regional and global averages.
  • Current Administration and Policy-making BMI assesses the threats to the continuity of economic policy, and likely changes to the business operating environment.
  • Long-Term Political Outlook BMI examines the structural risks to the stability of Cyprus’s political system and the dominant public policy issues likely to affect decision-makers, and outlines scenarios for how the state could evolve in the medium to long term.

Key Benefits

  • Benchmark Cyprus's risk profile against its neighbours, the global and regional average, allowing easy comparison of risks between key business markets.
  • Identify, evaluate and anticipate political and security risks to the business environment, and to your company's current operations and future plans.
  • Gain valuable insights into government and policy-making, through BMI's specialist team of analysts and economists, and their network of private and public sector sources.

Operational Risk

What are the current operational risks and difficulties associated with doing business in Cyprus?

The Operational Risk section gives an evaluation of current risks and difficulties associated with operating in the market. It also provides a brief overview of the regional Operational Risk Index which benchmarks Cyprus against its neighbours.

Operational Risk Contents

The chapter provides a summary of the main threats in the country, within:

  • Labour Market Risk (Education; Availability of Labour; and Labour Costs)
  • Logistics Risk (Market Size and Utilities; Quality and Extent of the Transport Governance)
  • Trade and Investment Risk (Economic Openness; Government Intervention; and Legal Risks)
  • Crime and Security Risk (Crime; Terrorism; and Interstate Conflict risks).

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