A long-haul journey out of the woods


MEDIUM RISK for entreprise

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

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GDP USD21,652bn (World ranking 109, World Bank 2017)
Population 1,18mn (World ranking 158, World Bank 2017)
Form of state Republic
Head of government Níkos Anastasiádis (President)
Next elections 2021, Legislative
  • Strong and stable business environment inside the Eurozone
  • Attractive fiscal system for corporates (12.5% corporate tax rate, the lowest in the EU along with Ireland)
  • Highly skilled and English-speaking workforce
  • Diversity of trade partners and access to Middle Eastern, European and Asian markets
  • Overreliance on the services sector, especially tourism, financial services and real estate
  • Unsustainable sources of financing in the long term due to weak banking sector
  • Very high gross external debt due to significant non-resident bank deposits
  • High public and private debt
  • Fragile banking sector due to the still high share of non-performing loans

Moderate GDP growth expected after years of strong recovery

After Cyprus’ return to growth in 2015, strong economic performance followed, with GDP growth of 4.8%, 4.5% and 3.9%, between 2016 and 2018,, mainly based on high consumer spending and investment. The next two years also saw a growth of public-sector spending at 3.1% and 4.3%, respectively, after years of fiscal consolidation.

Moreover, after high levels of both export and import growth in the years 2015 to 2017, 2018 brought the former down to a still solid 3.3%, whereas import growth came down to a moderate level at 2.0%, after a 12.2% growth rate in 2017.  Net exports contributed positively to growth (+0.7pp) in 2018 after having contributed negatively in the years before. 

We expect GDP growth for 2019 at 2.3% and for 2020 at 1.8%, which is still well above the overall average growth that is expected for the Eurozone (1.2% in 2019 and 1.3% in 2020) but well below the growth levels of the years before. We expect continuous employment growth, which will further support consumer spending as a driver of growth.  

Banks are in better shape, but the non-performing loan ratio remains among the highest in Europe

Although we expect growth to remain above the EU average, headwinds are expected to appear if the growth momentum slows down even further. After the 2013 banking crisis and the exit from the IMF bailout program in 2016, Cyprus’ banking sector made significant progress in restructuring its non-performing loans, which have declined rapidly due to write-offs and sales. From the peak in 2014, when it was at 48%, the share of NPLs came   down to 39% of total loans in 2018.

However, it still remains among the highest in Europe and headwinds for sustained growth could increase the difficulty to remain on a downward path regarding the debt level of the public and private sector. Moreover, declining net interest margins and the need to accumulate provisions have further weighed on the profitability of the banking sector, which has been in the negative over several years. Additionally, until the repayment behavior improves and the share of NPLs sufficiently decreases, banks will remain risk-averse, limiting their credit supply, while stable economic growth will increase demand. A recovery of domestic credit supply will thus become increasingly important to sustain continuous economic growth in the medium term. Positively, we see that the loan supply for corporates and households started to accelerate in 2018, at above 2% y/y for the corporates, for the first time in six years. Higher loan supply is important as the financing needs of the private sector remain high, given the elevated level of indebtedness - 100% of GDP for households and 200% of GDP for non-financial corporations. 

Trade structure by destination/origin

(% of total)

Exports Rank Imports
Greece 14%
19% Greece
Israel 11%
9% Korea, Republic of
United Kingdom 8%
8% Germany
Germany 5%
6% Italy
Libya 5%
6% China

Trade structure by product

(% of total)

Exports Rank Imports
Refined Petroleum Products 14%
15% Ships
Pharmaceuticals 12%
13% Refined Petroleum Products
Ships 7%
5% Toiletries
Fats 6%
4% Cars And Cycles
Basic Organic Chemicals 5%
3% Pharmaceuticals

  • Low

  • Medium

  • Sensitive

  • High

  • Payments

  • Court proceedings

  • Insolvency proceedings