Cyprus economy is in a whipsaw — Economist

Conditions in the Cyprus economy inched a bit higher in December, according to the Cyprus Composite Leading Economic Index which is designed to provide early-warning signals of economic changes. But January is likely to see a significant drop, while February may actually see it claw its way back, according to Hellenic Bank Chief Economist Andreas Assiotis, in an interview with the Cyprus Mail.

In September, the Index, which factors in a number of economic indicators, saw a decrease of 4.3 per cent, somewhat lower than the November drop of 4.7 per cent, according to a release from the Economic Research Centre at the University of Cyprus.

The index component Economic Sentiment improved in December, according to the index, as the vaccines for Covid-19 were announced during that month. Other components, both retail sales and credit card transactions continued to show a significant year-over-year increase.

Negative components limited the improvement, however, and these included the decline of tourism activity in particular. Electricity production appears to be declining as well, along with property sales contracts.

For now, expectation that the vaccines will end the crisis are high, Assiotis notes. But in January, lockdowns are expected to drive sentiment and retail sales lower. Yet Assiotis says, it’s possible that in February we will see an end to lockdowns, thanks to the vaccines, and emerge from the crisis pushing the index higher.

“This is an unprecedented crisis,” comments Assiotis.

“Consumers have been able to maintain levels of disposable income thanks to unprecedented fiscal support for employment. So there has been no correlation between unemployment and the contraction in output.”

As a result, disposable income has remained relatively high, Assiotis says, and that has meant relatively normal activity in consumption.

All this is likely to change in January as most retailers and restaurants will be closed. During this time, consumers may be expected to build up savings, Assiotis says.

Then, in February, if lockdown ends, consumers will have pent-up demand for goods, and there will be a rebound of consumer spending.

“In this case, retailers, who have had to close shops in January will be able to make up for their losses in February,” Assiotis points out.

There is, of course, prevailing uncertainty over how efficient the vaccines will prove to be, how rapidly they will be rolled out, and how soon normal life will resume.

Nonetheless, presuming that January does not prove too punishing for the economy, the chances of a solid rebound in February seem significant.