In its economic review for the second half of 2016, Hellenic Bank estimates that the Cypriot economy will register a growth rate between 2.5% and 3% of GDP. Unemployment is projected to decline to 11% and will decline below the 10% mark (9.5%) in 2018.
According to the report, inflation is projected to return to a positive trajectory after three and a half years reaching 0.8% and will accelerate further to 1.3% in 2018.
The bank believes that “the better than expected macroeconomic performance, cannot justify complacency and does not signal a relaxation of efforts to further reform the economy.”
For an external perspective, in the Economic Review, the Economic Research Department stresses that the country’s economy may be negatively influenced due to weaker than expected growth in the Euro area and a slowdown in output growth in the UK and further depreciation of the pound against the euro, as a result of increased uncertainty following Brexit.
Also, according to the research, possible deterioration of the Russian economic outlook and the increased geopolitical tensions in the Middle East and Eastern Mediterranean, could trigger adverse spillovers to economic confidence, tourism and consequently to the aggregate economic activity.
On the other hand, it is stated that, geopolitical tensions in neighboring counties render Cyprus as a safer tourist destination and could therefore counterbalance, to a significant extent, the potential reduction in tourist traffic from UK.
Hellenic Bank points out that the macroeconomic environment will support banks’ efforts to tackle the high level of non-performing exposures (NPEs) that “is impacting both on the banks’ balance sheets as well as on their ability to extend credit to the economy.”
Source: InCyprus
