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Cyprus’ economy continues booming in 2017: +3,8%

Published on: 20/11/2017

After an economic boom in 2016, hitting 2,9%, the economy of Cyprus continues its upwards trend, expanding by 3,8% in 2017.

The highest growth was seen during the Q2 2017, where the annual growth hit 4%. While Q1 2017 showed a growth of 3,8%, expansion of Cyprus’ economy reached Q3 2017 was 3,9%. The figures given are seasonally adjusted figures as per the Statistical Department of Cyprus.

The main growth drivers are private consumption and strong investment, while public consumption contributed positively as well. The growth of private consumption is supported by steadily rising household disposable income, stemming from robust employment. The current consumer confidence is buoyant, even remarkably above the pre-crises level (2012).

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Main sources of the continuous growth are rising output in tourism, retail and wholesale, as well as construction and manufacturing. The growth rates were slightly offset by decreasing output of the financial sector and the insurance industry.

The Ministry of Finance revised its growth forecast for the entire year of 2017 from previously 3% to 3,5%.

The unemployment rate in 2017 fell below 11%, from 13% in 2016, and from almost 18% in 2013. The unemployment rate is expected to fall to 9,3% in 2019.

Inflation showed a slight increase and reached an annual level of 1%.

The fiscal performance of Cyprus continues to be strong and has again outperformed the government’s budgetary targets. In 2017, the general government balance is expected to improve further, reaching a surplus of 1.1% of GNP. The general government primary surplus is also forecast to increase to 3.5% of GDP, while remaining one of the highest in the euro area in 2017.

In 2018, the fiscal surplus is expected to increase to 1.4% of GDP, provided the fiscal policy will not change.

Gross public debt could be reduced to 103,0%, from 107,1% in 2016.

The European Commission, which worked out its own evaluations and forecast, confirms all above figures. The European Commission said that economic growth in Cyprus “has exceeded expectations in recent quarters.”

The European Bank for Reconstruction and Development (EBRD) has upgraded its forecast of Cyprus' economic growth to 3.5 percent and 2.5 percent in 2017 and 2018: "Cypriot economic activity has sped up in 2017, building on the robust recovery of the past couple of years".

Projections by the Economic Research Centre of the University of Cyprus Economics Department, which is headed by Nobel Prize winner Christoforos Pissarides, were even more optimistic.

All analysts mentioned on the downside the yet very high rate of non-performing loans of currently 21,2 billion Euros, as a result of the crises in 2013 and the resolving of the banking system. Another negative factor is the high ratio of public debt to GDP, yet incomplete structural reforms as well as the introduction of permanent expenditures with longer-term budget effects.