The Central Bank of Cyprus has significantly upgraded its projections over the growth of the Cypriot economy in 2016 citing “better than expected recent economic indicators as well as preliminary data for Cyprus` GDP in the first quarter.”
According to the CBC’s bi-annual economic bulletin, the Cypriot economy will grow by 2.7% in 2016 from 2.0% in the December`s Bulletin, while economic growth in 2017 will accelerate to 2.9% from 2.7% in the previous projection. The CBC also estimates economic growth will reach 3.3% of GDP in 2018.
“Recent economic indicators as well as the preliminary figures of the GDP for the first quarter of 2016 were more positive than expected,” the CBC says.
The CBC notes that investments and domestic consumptions are expected to significantly contribute to the GDP`s increase in 2016.
Positive change
According to the CBC employment will register further positive change in 2016 with unemployment expected to decline to 13.1% compared with 15% in 2015. The unemployment will continue to fall in 2017 and 2019 to 11.2% and 9.1% respectively.
The CBC estimates that inflation will remain in negative territory in 2016 and specifically in -0.9% compared with -1.5% in 2015 mainly due to the continued decline in certain products and services as well as low oil prices.
In 2017 and 2018 the rate of inflation will reach 1% and 1.6% respectively, mainly driven by the expected forecasted domestic economic recovery, expected to affect prices, as well as energy prices, which are expected to increase.
Excluding energy prices, inflation in 2017 and 2018 will reach 0.7% and 1.4% respectively. Prices excluding energy and foodstuffs are expected to be around 0.5% and 1.3% in 2017 and 2018 respectively.
Fiscal imbalances corrected
The CBC states that fiscal imbalances have been corrected significantly putting the reduction of public debt to the correct basis, adding that public debt is on a downward path due to the primary balances recorded since 2014.
Furthermore, the CBC points out that the significant decline in lending rates has contributed positively in the viability of loan restructurings due to better repayments terms.
It adds that the favourable interest rate environment coupled with the recent signs for increased competition to the benefit of the borrowers may constitute a significant factor towards the further recovery of the domestic banking sector and the broader economic activity.
“The banking sector is recovering with the latest data suggesting that non-performing loans may have reached their peak,” the CBC points out, pointing out “loan write downs have significantly increased in March 2016 pursuant to the broader effort towards the banking sector consolidation.”
But the CBC warns that “the significant progress registered in the Cypriot economy allows no room for complacency as various challenges should be immediately addressed,” adding that “domestic and external economic and political risks that could slowdown or even reverse the upward trend have not disappeared.”
Source: CNA
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