Cyprus Mail

Forecasts with short term projections is not the correct analysis

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The government’s measures are good enough if the duration of the virus is a couple of months and there a bounce in business activity by the summer. However, this may be a prolonged health crisis and the problems of the economy will be much more substantial in that case.

The assumptions Christos Panayiotides is making is that the economy may still benefit from the sources of demand that helped Cyprus come out of the financial disaster.

No one knows how many hotels, or other firms which benefit from tourism, will survive by the Autumn; no one knows how many projects announced will be viable and who wiliest in such uncertain times. Most travel agencies may go bust and so will the firms linked to tourism if there is no prospect of tourism, even 50% less, in 2021.

The other sources of GDP growth are principally business services and real estate. The indications are that other states, starting with Russia, are all going to have to look for plugging their tax collection and the question is how many double tax treaties may change which may make Cyprus less attractive. If anyone believes real estate will be unaffected he is living in cloud 9. I think the reality check will come sooner than later and let us not forget this is the collateral of most borrowers in Cyprus.

With unemployment set to rise and tax revenues declining the government will have to raise taxes to keep some financial discipline, at least this much. Former Cyprus University rector Stavros Zenios has warned ALL to prepare themselves of how the largesse of government will be funded.

So to make any forecast and tinkering with short term projections is not the correct analysis. There is no going back to pre corona days!


The economics of the coronavirus #2

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