Cyprus Central Bank: “Risks to the economy despite growth”

The Central Bank of Cyprus (CBC) sees certain downside risks to the Cypriot economy for the period 2020-2022, that may lead to slower economic growth, despite the positive course of economic activity, as well as the continued robust economic growth.

“Brexit and the US-China trade war pose potential threats for the Cyprus economy.”

Non-performing loans (NPLs), which are overdue for a period of more than five years, as well as various geopolitical developments such as Brexit and the US-China trade war, pose potential threats for the Cyprus economy for the period of 2020-2022, according to the Central Bank’s economic bulletin, published Monday.

According to the bulletin, the economic growth for the year that ends 2019 is projected to slow down to 3%. This percentage is expected to be a bit lower for the years of 2020-22.

As regards the developments in the banking sector CBC’s forecast shows that banks continue their efforts for fiscal consolidation due to NPLs, especially those overdue for more than five years. This percentage amounts to 46% compared to 17% in Europe.

“CBC also notes that GDP recorded an increase of 3,1% for the first nine months of 2019.”

The economic bulletin also underlines the fact that the economy is generally on a good track, however, there are dangers due to macroeconomic imbalances and distortions of the past. The Central bank also underlines the fact that certain reforms in the economy and the efforts for a sound banking system are still underway.

CBC also notes that GDP recorded an increase of 3,1% for the first nine months of 2019.

“Although productivity remains low, many sectors record growth, particularly in the construction sector,” CBC adds.

Positive GDP growth had a positive impact on the labor market, while private consumption is expected to slow down due to the expected acceleration in loan repayments and the introduction of contributions to the National Health System (GESY).

“Positive GDP growth had a positive impact on the labor market.”

The projected slowdown in investments is attributed to the gradual completion of investment projects (renewable energy infrastructure, marinas, and the casino resort), while inflation is expected to move slightly higher in 2020 compared to 2019.