The University of Cyprus said that accelerated economic growth in the third and fourth quarters of 2016 will result in a 2.9 per cent growth rate for the entire year, matching the finance ministry’s updated forecast, before growth accelerates further, to 3.2 per cent next year.
Growth in the third quarter is forecast to accelerate to an annual 3 per cent and reach 3.4 per cent in the fourth quarter after growing 2.7 per cent in April to June, the Economic Research Centre of the university said in an emailed statement on Friday. The finance ministry forecast a 2.8 per cent growth for 2017.
The main factors which are expected to boost growth in the remaining quarters of the year are the increase in employment combined with a drop in the unemployment rate and further improvement of domestic indicators, the academic institution said.
In addition, the continuing period of low energy prices, the recovery of global financial markets following losses in the first half of 2016 and “a more structured market response to the outcome of the UK referendum” about the country’s membership in the European Union, will also strengthen growth, the ERC said.
“The increase in deposits combined with deleveraging resulted into a reduction of the deposits to loans ratio suggesting improved conditions at the domestic banking sector with positive effects on growth,” the ERC continued. “However, if the drop in the loan portfolios of banks leads to an increase of real estate on the asset side of the balance sheet of banks, risks are likely to emerge for the system’s stability especially in while demand for real estate remains subdued”.
The ERC said that the external economic environment, shaped by high confidence levels, positive growth rates in the EU and the euro area, and low interest rates in Europe, continues to support growth in Cyprus. “However, the long period of low interest rates reflects anaemic demand and as such uncertainty over the euro area economic growth dynamic”.