The Central Bank of Cyprus said it expects the economy to expand 3.8% this year before growth slowed down to 3.4% in 2018.
By 2020, growth is expected to gradually drop to 3.1 %, the central bank said in its economic bulletin, published twice a year.
The bank supervisor, which revised its June forecast upwards by 0.7 percentage points citing a “better than expected economic performance (reflected in) the course of all major productive sectors” said growth is expected to reduce unemployment to 9.8% next year, from 11.5% in 2016. The jobless rate is expected to drop gradually to 7% by 2020.
The harmonised inflation rate is expected to accelerate to 1.3% next year and in 2019 before reaching 1.6% 2020 from 0.8% in 2017 and minus 1.2% last year.
The Cypriot economy expanded 3% in 2016 after emerging from a prolonged recession the previous year recording 2% growth.
Finance Minister Harris Georgiades said on December 1 he expects the economy to expand 4% this year and growth to exceed 3% in 2018.
“In 2017, private consumption is expected to increase 2.2% after growing 3.3% last year reflecting mainly an increase in disposable income, historic low interest rates, tax relieves and the reduction of immovable property tax, and improvement in employment and salaries,” the central bank said. Private consumption is expected to increase 2% in 2018 and continue to rise at the same pace until 2020.
Public consumption is expected to increase 3.1% this year after falling 0.4% in 2016, attributed partly to the increase in the number of professional soldiers in the National Guard, the central bank said. Public consumption is expected to increase 1% next year and 1.9% and 0.8% in 2019 and 2020 respectively.
Exports of goods and services which increased 3.9% in 2016, is expected to drop slightly this year and rise 4.4% next year. Imports are expected to increase 0.6% this year after and 3.9% in 2018.
The central bank said a slower than expected decline of non-performing loans, considered the banks’ main problem, could negatively affect economic growth as it threatens the further decrease of private debt.
Further downside risks are related to Brexit, and in particular to a deterioration of external demand for services, as a result of an unfavourable situation for the UK economy, the central bank said. While certain sectors, including tourism could be affected, any impact would be manageable.
Upside risks are related to a faster than expected implementation of investment projects, including the operation of a casino resort in Limassol and other satellite resorts in other towns, the central bank said. Also, the completion of other investment projects, including university, research and transport infrastructure, could improve the macroeconomic environment.
The central bank also added that an increase in lending and the use of EU structural funds could lead to a further increase in investment in the private sector while investment in the exploitation of hydrocarbons could further improve macroeconomic prospects.
Source: Cyprus Mail