Cypriot economic activity will continue to accelerate in 2017-18 amid the country's recovery from a series of crises in the preceding decade.
Regardless, the economy will continue to be challenged by a weak external environment, public sector austerity, competitive pressures on wages and disposable income, and high levels of non-performing loans in the banking sector.
Greek and Turkish Cypriots are nearing a tentative agreement to reunify the island after more than 40 years of division, though disagreements over the key issues of property rights and security loom large. If a deal does not emerge by early 2017, we doubt that another such window of opportunity will open up again for many years, if at all.
The Cypriot government has exited its 2013 EU/IMF bailout, but the series of structural and fiscal reforms put in place under the programme have put the country in a position to boost private sector activity and reduce the public debt overhang substantially over the next decade.
Major Forecast Changes
We have revised up our 2017 real GDP growth forecast slightly to 2.6% from 2.5%, which reflects stronger-than-expected activity in the tourism sector.
We have revised down our forecasts for the euro exchange rate, and now project the currency to continue its multi-year depreciation towards parity against the US dollar.
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.
The UK's referendum vote in June 2016 to leave the European Union could hurt British investment into Cyprus, as well as depress Cypriot tourism revenues.
Given the sharp decline in major categories of expenditure, particularly fixed investment, the recent gains in international competitiveness may prove unsustainable.
|Real GDP growth, % y-o-y||-2.5||1.6||2.3||2.6|
|Nominal GDP, EURbn||17.4||17.4||18.0||18.5|
|Consumer price inflation, % y-o-y, eop||-0.3||-1.5||-1.0||0.7|
|Exchange rate EUR/USD, eop||0.80||0.90||1.00||1.00|
|Budget balance, % of GDP||-0.2||-0.5||0.0||0.0|
|Current account balance, % of GDP||-4.6||-3.6||-4.1||-4.7|
Assess your risk exposure in Cyprus with our 100% independent forecasts assessing the pace and stability of this key market. Backed by trusted data from BMI Research's 52 million data point economic forecast model, this report will allow you to measure political, economic, business environment and operational risks in Cyprus with confidence.
Your subscription service includes:
- Delivery of the report in print and PDF
- Online access for 12 months
- The functionality to translate your online report into your choice of 10 languages - Arabic, Chinese, French, German, Italian, Japanese, Korean, Portuguese, Russian and Spanish
- The ability to export data and graphs from the online report directly into your workflow
- The support of a dedicated Account Manager to answer any questions you might have about your subscription
- Access to our team of leading analysts who will be happy to answer any questions you might have about the data and forecasts included in this report