GDP to expand by around 3.5% in 2019 and 2020

The Cypriot economy is projected to grow at robust rates in 2019 and 2020, albeit at a somewhat slower pace than the growth rate of 3.9% registered last year, University of Cyprus Economic Research Centre (ERC) said.

In its May Economic Outlook, it also upgraded by 0.4 percentage points its earlier projection for the GDP growth this year.

According to the ERC, in 2019 the Cypriot economy is projected to expand by 3.5% and 3.4% in 2020, driven by the strong economic performance, muted inflation, improving conditions in the domestic banking sector, strong fiscal indicators, supportive financial conditions and high levels of confidence.

The ERC forecast is more optimistic than the European Commission’s outlook which puts Cyprus GDP growth at a lower 3.1% for 2019 and 2.7% in 2020.

Concerning the upward revision for 2019 growth, the ERC said the uptick is mainly driven by the better-than-predicted outcome for the final quarter of 2018.

The upward revision also reflects favourable developments after the third quarter of 2018, such as low inflation, strong fiscal performance and less adverse financial conditions (e.g. improved performance of international stock markets and declining spreads in the euro area).

Moreover, the ERC pointed out that the moderation in the growth momentum projected for 2019 and 2020 is mainly driven by a weaker performance of some domestic economic indicators and slower growth in the EU and the euro area reflected “in hard and soft data.”

It warns that downside risks to the projections are associated with slower progress with private sector deleveraging and with the reduction of non-performing loans, the high level of public debt together with the strong link between bank and sovereign risk, as well as fiscal risks stemming from court rulings on public sector pay cuts and the newly introduced General Health System.

Downside risks could arise from higher uncertainty surrounding the UK’s exit from the EU, weaker-than-expected growth in the UK and the euro area, and geopolitical tensions in the Eastern Mediterranean.

Upside risks to the outlook may stem from faster reduction in the stock of NPLs, and a higher degree of materialisation of investment plans (e.g. investments relating to tourism, property developments, energy) than that reflected in the predictors, the ERC said.

Source: Financial Mirror