In a report released this week, the centre noted that Cyprus’ Economic Sentiment Indicator (ESI) rose by 1.5 points compared to July 2024, driven by stronger business confidence in the services, construction, and manufacturing sectors. The rise in confidence within the services sector was primarily attributed to improved expectations regarding turnover in the past and upcoming quarters. The construction sector saw a second consecutive month of strengthened sentiment, bolstered by more favourable assessments of ongoing projects and positive employment forecasts. Manufacturing also contributed to the overall improvement, largely due to better production expectations for the coming quarter. However, the retail trade sector experienced a slight decline in confidence, resulting from a worsening current situation and lower sales projections for the next quarter.

In August, businesses adjusted their expectations upwards for turnover in the upcoming quarter, while slightly reducing their employment forecasts, though these remained generally positive. In addition, expectations for selling prices in the next quarter continued their downward trend. Across various service sub-sectors, business sentiment improved in financial activities and remained robust in professional services. However, sentiment remained weak in the accommodation and food services sectors. In other services, business confidence saw a boost in August.

The retail trade sector saw a decline in business sentiment, driven by a worsening current situation and future expectations. The deterioration in the assessment of sales over the past quarter, along with worsening evaluations of current inventories, contributed to this negative trend. Compared to July, businesses were less optimistic about sales and supplier orders for the next quarter. Moreover, employment expectations remained positive, albeit at levels consistent with previous months, while expectations for selling prices were revised downwards.

In the construction sector, business sentiment strengthened for the second month in a row, supported by further improvements in the current situation and future expectations. Assessments of ongoing projects improved once again in August, and evaluations of recent building activity remained positive, though slightly lower than in the previous two months.

Businesses remained optimistic about their employment numbers for the next quarter, revising their forecasts upwards for the second consecutive month. However, expectations for selling prices continued to decline for the third straight month.

In manufacturing, business sentiment increased due to improved expectations. Despite a deterioration in assessments of production over the last quarter and a continued downward trend in current orders, the sector benefited from stronger downward pressure on final product inventory levels. This trend supported overall sentiment.

The report also showed that businesses revised their production forecasts for the next quarter upwards, while employment expectations remained stable at the positive levels seen in June and July. After four months of decline, selling price expectations in manufacturing were revised upwards in August, with a notable increase in volatility compared to other sectors. Nevertheless, price expectations in manufacturing remained lower than those in other sectors. Conversely, consumer sentiment continued to decline in August, with deteriorations across all components, including assessments of households’ recent financial situation, future household and national economic prospects, and intentions for major purchases.

Following three months of gradual improvement, consumers’ evaluations of their recent financial situation worsened in August. Assessments of the country’s recent economic situation remained close to the negative levels seen in July. Furthermore, consumers revised their expectations for the future economic situation of both their households and the country downward in August. At the same time, consumers became more pessimistic about future labour market conditions, with an increasing proportion expecting a rise in unemployment. Additionally, in August, consumers’ perceptions of price trends over the past 12 months showed an upward trend, reaching the highest point in the last 10 months. Expectations for price trends over the next 12 months were also revised upwards, halting the downward trend seen over the previous three months. Meanwhile, consumers’ intentions to make major purchases weakened, while the likelihood of saving increased.

CypERC also reported that while economic confidence improved in August, it was accompanied by increased uncertainty. The Economic Uncertainty Indicator saw a significant rise due to both external and domestic factors. Ongoing geopolitical tensions, especially in the Middle East, increased volatility in international markets throughout August, intensifying concerns about global economic activity. Additionally, disruptions to major investment projects in Cyprus, particularly those tied to energy infrastructure, have further amplified uncertainty among businesses and households.

It should be noted that the economic sentiment survey in Cyprus is conducted through the participation of the University of Cyprus’ Economics Research Centre, in collaboration with RAI Consultants Ltd, as part of the European Commission’s Joint Harmonised European Union Programme of Business and Consumer Surveys. 

The project is funded by the European Union, the Ministry of Finance, and the University of Cyprus.