In its most recent quarterly report, Yiannis Tirkides, the author of the report, said that the economy continued to expand in the first three quarters, with continued expansion in the horizon. Annual growth is expected to be 2.8% according to estimates by the International Monetary Fund and the European Commission.
The drivers to growth remain tourism and international business services on the supply side, and private consumption, fixed investments and net exports on the expenditure side. Tourist activity is driven by robust growth in arrivals and increases in receipts. The nature of international business services is changing as it switches to more diversified fee based services whilst the flow of deposits from the rest-of-the-world is shrinking, said the report.
In addition, consumer prices continued to decline in the year, down by 1.6% in January-October driven by lower oil and commodity prices but also by internal devaluation. Unemployment dropped sharply also, down to an estimated 12.1% in the third quarter of the year on a seasonally adjusted basis, compared with an unemployment rate 15% for 2015 as a whole and a peak of 16.5% in the fourth quarter of 2014.
Progress in non-performing exposures is very encouraging. Total non-performing exposures as reported by the Central Bank of Cyprus dropped to €25.1 billion at the end of August 2016 from a high of €28.9 billion in April 2015.
The outlook for the Cyprus economy over the medium term remains positive. The recovery is broadly based, funding conditions in the banking system have improved markedly and non-performing loans have started to drop, and the unemployment rate has been declining at a significant pace.
Downside risks to the growth projections are associated with remaining high levels of non performing exposures and prolonged uncertainties in property markets. Downside risks may also be associated with a potential deterioration of the external environment for Cyprus.
Upside risks to the outlook relate to a longer period of low oil prices, better growth performance in the European Union and investment decisions in tourism and energy and in public projects.