articles | 04 November 2016

EBRD upgrades Cyprus’ growth forecast

The European Bank of Reconstruction and Development upgraded its forecast for Cyprus economic growth this year and 2017 upwards, to 2.7% and 2.2% respectively.

“Growth accelerated in the first half of 2016 to 2.7% year-on-year, and consumer confidence has risen sharply, exceeding the European Union average in recent months and supporting strong private consumption growth,” the EBRD, which holds a 5% shareholding in Bank of Cyprus and a 5.4% stake in Hellenic Bank said in a statement on its website on Thursday.

The EBRD which in May forecast a 1.7% growth rate for 2016 and 2% for next year, said that the high level of private and public debt combined with a non-performing loans ratio of roughly half of total loans in the banking system, “continue to constrain growth”.

“Gross fixed capital formation was also a major positive contributor, although this was to some extent neutralised by the negative contribution from the change in inventories,” the bank which in 2014 earmarked a total of €700m of funds for Cyprus. “The more dynamic economy had positive spill-overs on the labour market, as the unemployment rate has begun to fall, reaching 12% in mid-2016 compared with the 2014 peak of 16.3%”.

According to the bank’s website, it has so far invested in Cyprus €170m. Investment in financial institutions account for 88% of its overall investment, while energy and infrastructure projects absorbed 6% each.

“Fiscal performance has also been strong, with the fiscal deficit falling to just 1% of gross domestic product in 2015,” the London-based bank said. “Nevertheless, general government debt is still high, exceeding 100% of GDP at the end of 2015”.

The EBRD, which was initially set up to facilitate transition economies in 1990 following the end of the Cold War, said that the decision of British voters to leave the EU in a referendum in June could impact the performance of economies of the EBRD-region which extends from the Baltics via Central and East Europe to the Balkans and from Northwest Africa to Russia, Kazakhstan and Mongolia, could impact economic performance in countries it operates.

“A greater impact on the region’s economic performance may materialise through the potential adverse impact of UK’s exit on other EU economies, which in turn may depend on the impact of the UK referendum on domestic politics and the reform momentum in individual member states,” it said. “In the longer term, a lower EU budget following the UK’s departure may result in reductions in the EU structural funds available to the new EU member states, and in pre-accession funds to candidate and potential candidate countries”.

The EBRD said that the tourism industry in Cyprus, Croatia, Montenegro and recently also Greece, had been benefiting from geopolitical tensions, attacks and the refugee crisis which affected other areas the lender operates such as Egypt, Tunisia and Turkey.

Source: Cyprus Mail

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