Real economic activity to continue to expand at robust rates, CypERC says

Real economic activity in Cyprus is expected to continue to expand at robust rates in 2018, according to the Economics Research Center of the University of Cyprus.

It says that in 2017, real GDP is estimated to have increased by 3.8%, while in 2018, growth is forecasted at 3.6%.

While real GDP growth is predicted to reach 3.7% in the first half of 2018, it is subsequently projected to ease to 3.5% in the second half of the year a press release says.

It adds that the main factors driving the strong growth rates forecast in the next five quarters include: the solid improvements in domestic activity and labour market indicators in recent quarters, the steady upward trend in the level of the domestic economic sentiment indicator, the favourable external economic environment and the subdued inflation rates. Other positive domestic developments, such as the strong fiscal performance, the low levels of lending interest rates, the rise in deposits and the ongoing deleveraging, have also contributed to the strong outlook for 2018.

Downside risks to the growth forecasts include: a sluggish progress in the management of non-performing exposures on banks, ineffective resolution of problematic loans, and lack of momentum in completing pending and launching new structural reforms.

The press release says that these risks, which stem from the high levels of private debt and non-performing loans, and the high public debt relative to the size of the economy, could limit growth prospects by undermining economic confidence, financial stability and fiscal sustainability.

Slower-than-expected growth in the UK, the uncertainty effects of Brexit and a weaker pound could also have adverse effects on growth. Upside risks to the outlook are associated with public investment in infrastructure and private investment, especially in the sectors of energy, tourism and real estate, as well as with better-than-anticipated growth outturn in the EU and Russia, it adds.

The more optimistic outlook in this bulletin, vis-a-vis the November issue, is mainly the result of upward revisions of the GDP data (constant prices) for the period between the first quarter of 2015 and the second quarter of 2017. The positive developments in domestic macroeconomic and leading indicators, and the favourable external economic conditions during the second half of 2017 have also contributed to the upward revision of the forecast the press release concludes.

Source: Cyprus News Agency