Real GDP in Cyprus could decrease by between 3.5 per cent and 9.2 per cent in 2020, according to a study published by Nicosia-based research consultancy Sapienta Economics on the effects of coronavirus on the island’s economy.
However, the study indicates that the tourism and retail sectors’ downfalls would be partly offset by an increase in food sales, healthcare and public spending.
“In our monthly Country Analysis Cyprus report, we normally just give a single figure for the GDP growth forecast,” said Sapienta Economics director, Fiona Mullen.
“But with the situation changing rapidly, we have produced a low, medium and high forecast for our March report.
“The smallest decline is 3.5 per cent, the baseline decline is 6.2 per cent, while the largest decline is 9.2 per cent,” she said.
The Cyprus government banned all incoming flights on March 21. Restrictions on the movement on residents have also gradually been tightened.
The most recent measure, implemented on March 25, forces residents to have special permission to leave their homes.
The study has also calculated a worse-case scenario, in which there will be no tourism arrivals in the months of April, May and June, and in which arrivals in December will only amount to 60 per cent of their levels in 2018-19.
In the best-case scenario, tourists will start coming back to the island in May, but will only amount to 10 per cent compared to previous years, to then gradually rise to 80 per cent of previous levels by December.
The study suggests that the main reason why the real GDP predicted decline will hit double digits is due to the fact that non-tourism sectors have grown in size in the past two decades.
“Tourism remains a key driver of growth in Cyprus, accounting for 6.1 per cent of GDP in 2019, and with obvious knock-on effects for sectors such as construction and retail,” said Mullen.
“However, its impact is not as big as it was in the past, having been overtaken by sectors such as finance and insurance, professional services and real estate.
“We estimate that, during the Covid-19 outbreak, the total contribution of tourism to GDP is 12 per cent, down from almost 20 per cent in 2000,” she added.
The Sapienta study reveals the impact on the economy is similar to 2013, when Cyprus suffered a severe banking crisis and real GDP contracted by 6.6 per cent.
One sector that is expected to grow, however, is food sales, just like in 2013.
“What we saw in 2013 was that, despite the crisis, or even because of it, food sales grew very strongly,” said Mullen.
“This time food sales are going to be affected by the absence of tourists, of course, but according to our calculations, food sales to residents account for almost 90 per cent of the total, so they have the biggest impact.”
The other three sectors that Sapienta expects to grow this year are healthcare, information and communications, and the public sector.
Finally, the study expects a rapid bounce back in 2021, with real GDP growth reaching 6.4 per cent in 2021. In its best-case scenario, growth in 2021 could reach as much as 12.1 per cent.
However, the bounce back prediction depends largely on how long the virus crisis will last and on the measures adopted by the government to try and alleviate the crisis.
“Our forecast is going to be a work in progress for the next few months,” said Mullen.