Cyprus’ macroeconomic outlook is positive with growth expected to reach 4 per cent in 2018 and 3.9 per cent in 2019, Hellenic Bank said on Tuesday.
In its review for the fourth quarter of the year, Hellenic’s department of economic research said the island’s phase of recovery from the 2013 collapse has passed and the economy was now entering its growth phase.
In a news release, the bank said it expects a positive macroeconomic outlook accompanied by “a significant increase in real gross domestic product during the first nine months of 2018, robust employment growth, and further improvement in key domestic indicators.”
Growth, it adds, was expected to be supported by private consumption and investment and by an improving and robust labour market.
“Public expenditure is also expected to contribute positively to growth through higher investment expenditures,” the lender said.
According to the baseline macroeconomic scenario, growth is expected to be 4 per cent in 2018 and 3.9 per cent in 2019.
“The pick-up in domestic demand is expected to be reflected in improved labour market conditions with unemployment decreasing to 8.2 per cent in 2018.”
Inflation in 2018 is expected to remain at relatively low levels, at around 0.7 per cent.
“What is encouraging for the new growth phase, helping to avoid the repeat of the boom-bust cycle experienced in the past, is that the recent economic performance has not been driven by government through public spending and the related multiplicative role, nor is it funded from unsustainable credit-fuelled consumption as observed in the pre-crisis period,” it said.
Public finances have been consolidated to a large extent to secure the sustainability of public debt.
At the same time, it warned that better than expected macroeconomic performance does not justify complacency and does not signal a relaxation of efforts for further economic reform.
“The implementation of important structural reforms will help strengthen the competitiveness of the Cypriot economy,” it said of the outstanding reforms concerned with the implementation of the privatisation agenda, along with the reforms within the public administration, local government and the health sector.
According to the economic review, despite the important steps taken towards restoring the positive economic climate, some degree of uncertainty remains, as the country still has certain issues to resolve, such as the high level of non-performing exposures, high unemployment and the high private and public debt, which are however, on a steady declining trend.