Cyprus’ economy is showing signs of stabilisation but improvement in economic sentiment has come to a halt, the European Commission said on Thursday, warning of difficulties ahead due to the situation in Russia.
“Economic sentiment remained broadly unchanged in the second half of 2014, putting on hold the improvement observed since April 2013,” the Commissions said in its winter forecast. “While consumer confidence continued to improve, business sentiment in most sectors weakened with the exception of service-sector confidence which improved somewhat.”
Despite the trade indicators suggesting an improving growth momentum in the short term, this is being offset by weakness in indicators for credit and tourist arrivals, particularly from Russia.
During this year and the next, growth is forecast to resume gradually as private domestic demand picks up supported by lower energy prices.
“The moderate pick-up in domestic demand is expected to be reflected into improved labour market conditions, with unemployment starting to ease gradually.”
However, a failure to reduce the high non-performing loan ratio – around 50 per cent – could lead to a more prolonged period of tight credit, “stalling the recovery of investment.”
On the external side, negative economic developments in Russia are likely to weigh on export growth in 2015, given the sizeable trade links between the two countries.
“This negative effect is likely to dominate the positive impact from lower oil prices, leading to downside risk to the GDP growth projection for 2015.”