Real economic activity in Cyprus is expected to continue to increase at robust rates in 2020, albeit at a slower pace compared to 2019, says the Economics Research Centre (CypERC) of the University of Cyprus.
“Growth is projected to decelerate further in 2020 as real GDP is forecast to increase by 2.8%.”
According to the January 2020 “Economic Outlook”, the growth rate of real GDP is estimated to have slowed from 4.1% in 2018 to 3.4% in 2019. Growth is projected to decelerate further in 2020 as real GDP is forecast to increase by 2.8%.
The drivers of the outlook include the recent robust economic performance in Cyprus, low inflation and supportive financial conditions, it is noted. Nevertheless, the forecasts have been revised downwards compared to those in the November issue.
“The drivers of the outlook include the recent robust economic performance in Cyprus, low inflation and supportive financial conditions.”
The downward revisions reflect the moderation of the growth momentum in Cyprus and the EU, particularly after the second quarter of 2018, and the faltering of some leading indicators, especially domestic and European economic confidence indicators.
According to CypERC, downside risks to the projections may stem from slower progress with private sector deleveraging and slower progress with the reduction of NPLs. These risks could be accentuated in an environment of low profitability in the banking sector, it is added.
“Downside risks STem from private sector deleveraging and slower progress with the reduction of NPL’s.”
Moreover, it is noted that the high level of public debt together with the strong link between bank and sovereign risk, and potential pressures to public finances continue to pose risks to the outlook. Fiscal pressures could be associated with court rulings on the reversal of past public sector pay cuts, rapid growth in the public sector wage bill and the newly introduced General Health System.
Other downside risks could arise from weaker-than-expected growth in the euro area and the UK, as well as from rising geopolitical tensions in the Eastern Mediterranean. In particular, downside risks may result from weaker-than-expected demand for tourist services due to renewed Brexit-related uncertainty regarding the future relationship of the UK with the EU. Upside risks to the outlook are associated with a higher degree of materialization of investments than that reflected in the predictors, as well as stronger-than-expected growth in Russia, the CypERC concludes.
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