Cyprus Mail
Business Guest Columnist Opinion

We have been through worse and survived

Closed bars and restaurants are pictured near Piazza Navona Rome, REUTERS/Alberto Lingria

By George Pirishis

Economists around the world always face one limitation. Neither can they predict upcoming financial crises nor can they agree on a common remedy. Especially now that the pandemic of coronavirus (Covid-19) has been increasingly affecting the international economy they cannot agree on a common approach to prevent a potential contraction of global growth. Without doubt, the risk of further spread of the virus is among the worst case scenarios and I believe that each country will be negatively affected depending on the composition of their GDP.

For example, the German GDP heavily relies on exports to Asian countries such as China and is likely to indicate an economic contraction in the near future. Indicatively, revenue in the German automotive industry from sales to China amounted to 40% of total sales. This means that there has already been a sharp drop in revenue in the German automotive industry, as indicated by international media. The same is true, but to a lesser extent, of the French economy.

In addition, the International Maritime Chamber has announced that the shipping sector is losing a total of €350m a week, while Europe’s main ports, for example Rotterdam and Hamburg, experience a significant decline in vessel arrivals from Asia.

Cyprus, traditionally a service economy, may also be affected to a large or small extent by the impact of Covid-19. So far, some companies on the Stock Exchange announced earning reductions as a result of losses in their investment portfolio, while other companies directly related to the tourism sector reported they are equally affected.

As expected, major repercussions in all sectors will occur and the growth rate will slow sharply. However, the spread of fear cannot be the main approach to handle the effects of the pandemic on the global economy. And arguably, the fall in GDP growth will not be as dramatic as it was in the past, with the financial crisis that hit Cyprus in 2013 involving the collapse of the island’s banking system. The Cyprus economy has been through much worse and managed to survive, even though many problems still persist and need to be resolved through consensual and rational approaches.

George Pirishis, Economic Analyst

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