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Cypriot economy feeling effects of Ukraine war

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The Cypriot economy continues to show signs of growth, improving its performance over the previous year, but external factors are contributing to a loss of momentum, according to a report by the University of Cyprus Economic Research Centre.

Cyprus’ Composite Leading Economic Index (CCLEI), which uses a variety of metrics to provide an early outlook on future economic activity, increased by 11.3 per cent year-on-year in March, reaching 115.4 points.

This follows year-on-year increases of 14.2 per cent in February and 15.3 per cent in January, according to the most recent and revised data.

“The positive year-over-year growth rate of the CCLEI continues to slow down in March 2022,” the report said.

“More specifically, the jump in the Brent Crude oil price in March 2022 to historically high levels contributes to the slowdown in the positive year-over-year growth rate of the CCLEI in March,” the report added.

Furthermore, despite an improvement in the Economic Sentiment Indicators (ESI), both in Cyprus and the wider eurozone area, when compared to the same month of the previous year, a drop in consumer confidence, alongside weaker growth in all other business sectors, hampered the index.

In addition, according to preliminary data, the volume of retail sales also contributed to the restrained growth of the leading economic index, with retail sales falling year-on-year during February, and growing only slightly during March.

“The expected slowdown in the growth rate of tourists’ arrivals in March, due to the war, also contributes in the same direction,” the report said.

Transport Minister Yiannis Karousos stated in March that Russian and Ukrainian tourists are estimated to comprise over a fourth of the total tourist numbers coming into Cyprus every year.

Travel restrictions imposed on Russia across Europe are expected to result in an estimated loss of 800,000 tourists in Cyprus.

The minister also noted that the government had previously expected that this year’s tourist numbers would come close to the record year of 2019, with businesses reporting a 90 per cent booking rate.

Beyond the factor of tourism, the CCLEI report explained that the temperature-adjusted volume of electricity production, the value of credit card transactions, and the total number of property sales contracts continue to have a positive effect on the index, experiencing an accelerated growth rate in March when compared to the previous year.

“Although the Cypriot economy showed signs of recovery from the pandemic crisis, the slowing growth rate of the CCLEI in February and March 2022 reflects the impact of the
consequences triggered by the Russia-Ukraine war and the international sanctions against Russia on the short-term development prospects of the Cypriot economy,” the report concluded.

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