Cyprus: A long-haul journey out of the woods

6/22/2017 - Report
ic_blogtagCyprusCountry Risk

Country Report

Strong growth momentum for the second consecutive year

After the return to growth in 2015 following three years of recession, the economy continued to strengthen in 2016, with GDP growth reaching a robust +2.8%, the highest level since 2008. Tourism was one of the main drivers of the economy with revenues exceeding 13% of GDP in 2016. This allowed a strong rebound in total exports of goods and services (volume): +3.6% in 2016. The economy’s competitiveness was reinforced in some sectors as wages declined. The lower euro also played its part since Cyprus’ main trading partners are outside the Eurozone (e.g. Egypt, China and Israel). 

Private consumption grew by +2.9% in 2016 (up from +1.9% a year earlier). The construction sector and fixed investments were significant contributors to GDP growth as well thanks to important acquisitions of transport equipment which boosted total investment growth.   

Inflation remained negative until the end of 2016. Better economic prospects and rising commodity prices boosted prices and we expect inflation to climb to +1.5% on average in 2017. This should be supportive for higher turnover growth.

Overall growth is expected to be strong in 2017 and 2018, with +2.8% and +2.5% respectively. These figures outreach by far the Eurozone average forecasts of +1.9% and +1.7%. Private consumption should be the main driver for growth thanks to strong employment growth and resilient purchasing power despite the rise in inflation.

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