The European Commission expects 3.6% GDP growth in 2018 and 3.3% in 2019 for Cyprus, in its Summer Forecast

After expanding by 3.9% in 2017, a nine-year high, Cyprus’ economy continued its cyclical upswing in early 2018, posting 3.8% (y-o-y) growth in the first quarter of 2018. Growth was driven by solid domestic demand and, lately, exports, consumer sentiment continued to improve, while business confidence across major sectors either increased or levelled off, suggesting continued momentum in the coming quarters. That is the main message on the economy of Cyprus, contained in the “Summer – Interim Economic Forecast”, prepared by the Directorate General for Finances of the European Commission, presented by Commissioner Pierre Moscovici.

According to the chapter on Cyprus of the forecast, the composition of growth shifted somewhat in early 2018, investment, after breaking an historic high in the last quarter of 2017, fell in the first quarter of this year, goods exports, by contrast, more than doubled compared to the previous quarter and shipping sector activity was at the heart of these pronounced changes, with ship acquisitions moderating, while ship sale/deregistration reached record high levels. Excluding shipping activity, the underlying trends remained broadly stable and this compositional shift is expected to be temporary, says the EC.

Furthermore, according to DGECFIN, exports of services were subdued in the first quarter of the year, but “this soft patch is likely to be overcome in the quarters ahead thanks to the marked increase in tourist arrivals already recorded in the spring months as well as the completion of new hotels for tourists.”

The Forecast also shows that private consumption continues to expand, supported by rapidly rising employment and gradually increasing wages, while survey data reveal that hiring is set to continue strongly in the near future, giving a further boost to disposable income.

Finally, the Commission states that “Cyprus’ struggling financial sector, which has been a drag on the economy since the crisis years, is consolidating” and “once finalised, the sale of the second largest bank, Cyprus Cooperative Bank, is expected to reduce uncertainties surrounding the macroeconomic outlook.”

Overall, real GDP growth is expected to reach 3.6% in 2018 and 3.3% in 2019, unchanged since the spring. Inflationary pressures remain weak. HICP inflation dropped during the first four months of the year and turned positive only in May. The decrease in prices was rather broad-based, reflecting strong competition among retailers in several sectors and subdued wage dynamics. HICP inflation is expected to be positive for the year as a whole due to increasing services and energy prices and it is expected to pick up further in 2019, mainly as a result of higher oil prices and the gradual build-up of domestic price pressures amid rapid economic recovery.

Source: Cyprus News Agency