The University of Cyprus said that it revised its economic growth rate forecast for this year to 3.6 per cent from 3 per cent in July, citing an improved labour market and leading indicators.
“Real economic activity in Cyprus is expected to continue to expand strongly in 2017 and 2018,” the university’s Economic Research Centre (ERC) said on Friday in an emailed statement. A strong economic sentiment, restored confidence in banks after the 2013 crisis, and low interest rates combined with a favourable external environment also helped recovery.
“In 2018, real gross domestic product (GDP) growth is forecasted to remain robust at 3.3 per cent,” which is 0.3 percentage points higher than the July forecast, it said.
In both the first and second quarter of the year, the economy expanded 3.6 per cent. Last year, economic output grew 3 per cent and 2 per cent in 2015 when it exited a prolonged recession. Finance minister Harris Georgiades said on Thursday that he expects the economy to expand 3.5 per cent or more this year.
The centre revised this year’s inflation rate forecast down to 0.7 per cent from a previous 1.3 per cent and to 1.8 per cent from 1.9 per cent for 2018.
Downside risks to the growth include the banks’ non-performing loans, recorded at 44 per cent of total loans, the government debt which stood at 107 per cent of economic output last year, the stalled structural reforms process and “the introduction of permanent expenditures with unclear longer-term budget effects,” the ERC said. “Downside risks stemming from the external economic environment relate to slower-than-expected growth in the UK and further depreciation of the pound against the euro”.
Public investment in infrastructure, and private investment in particular in the area of energy, tourism and real estate, are upside risks, the ERC said. A better than anticipated performance of the European and Russian economy could also help that of Cyprus grow faster, it added.
“The more optimistic outlook in this bulletin, vis-a-vis the July issue, is mainly the result of a large upward revision to the GDP growth data for first quarter of 2017,” the centre said. “The positive developments in domestic macroeconomic and leading indicators, and the favourable external economic conditions have also contributed to the upward revisions of the growth forecasts”.