articles | 06 July 2018

Central Bank revises 2018 growth forecast upwards to 4.1%

The Central Bank of Cyprus significantly revised its 2018 economic growth forecast upward to 4.1% from a previous 3.4% citing strong exports and domestic demand.

In 2019, the economy is forecast to grow 3.9% with the growth rate slowing down to 3.5 % the following year, the central bank said in its June 2018 economic bulletin.

“In 2018, private consumption is expected to increase 2.5% after growing 4.2% in 2017, reflecting the increase in disposable income resulting mainly from an increase in employment and to a lesser degree higher earnings,” the central bank said. Public consumption is forecast to increase 1.8% in 2018 after growing 2.7% the year before due to the increase in wages and the increase in employment in the public sector. The value of exports of goods and services is expected to increase 6.1% this year after growing 3.4% last year while imports are forecast to increase 5.5%, almost half as much they increased last year.

In addition to positively impacting private consumption, the increase in wages is expected to positively affect savings of households, which during the crisis years resorted to their deposits to maintain the level of consumption, and also help repayment of non-performing loans, the central bank said.

Gross fixed capital formation is expected is expected to increase 9 % this year after growing a staggering 28% in 2017 resulting from the completion of private sector projects and the purchase of transport equipment, mainly ships, by special purpose vehicles, the central bank said.

The unemployment rate is expected to average this year at 9.1%, compared to 11% last year, with employment increasing 3.5% after growing 3.4% in 2017, it said. In 2019, the unemployment rate is expected to fall to 7.4%.

This year, nominal compensation per worker is expected to increase 1.9% after growing 0.7% last year mainly on pay rises in the public sector triggered by the re-introduction of wage indexation, compensating workers for the loss of purchasing power, and the introduction of annual pay rises, the central bank said.

“The afore-mentioned wage increases are on top of the annual incremental pay increases from 2017, after a wage and pension freeze period expired,” it said.

The harmonised inflation rate is expected to accelerate to 0.9 % this year from 0.7% in 2017, before it further accelerates to 1.4% next year, the central bank said.

Source: Cyprus Mail

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