Services sector lifts economic sentiment

Economic sentiment in Cyprus experienced a slight improvement in May, according to a business and consumer survey report by the University of Cyprus released on Thursday.

The Economic Sentiment Indicator (ESI-CypERC) rose by 1.1 points compared to the previous month, something which the report primarily attributes to more robust confidence in the services sector.

“The increase in the Services Confidence Indicator was driven by further improvements in the assessments of past performances (in terms of both business situation and demand) and upward revisions in demand expectations,” the report explained.

When compared to April, services firms expressed a more positive outlook in terms of their financial situations, while they were also more upbeat about their turnovers over the past quarter.

Moreover, businesses in the services sector also said that they had revised their turnover expectations for the next quarter upwards. This was the second consecutive month this has happened.

In addition, regarding employment levels in this sector, businesses responded in a more positive way as to the number of employees they are expected to have when compared to the same question in April.

What is more, they were also more upbeat about their employment levels for the next quarter.

In terms of the prices charged by services companies in May, these fell slightly month-on-month, but still remained at high levels.

In terms of hotels and restaurants, a sub-segment of the services sector, the report noted that the business climate was more positive in both April and May, when compared to the first quarter, despite the increased uncertainty in the tourism industry overall.

The Retail Trade Confidence Indicator remained stable from its previous level.

The reason behind this was a decline in sales expectations, which cancelled out the improved evaluation of both recent sales figures and current stock levels.

In May, retail businesses’ sales expectations for the next quarter were revised downwards, while their order and employment estimates for the next quarter were as negative as they were in April.

Furthermore, retail businesses said that they expected sales prices to continue their upward trend for the fourth consecutive month, reaching historically high levels.

Stability was also observed in the construction sector, where companies’ assessment of their order book levels and employment expectations were broadly unchanged from their April levels.

A decline in confidence was observed in Cypriot industrial companies, driven by a decrease in current order book levels and a grim outlook on future production.

The Consumer Confidence Indicator also declined during this time, with the report explaining that this is “mainly because of downward revisions in consumers’ expectations about
their financial conditions and the general economic conditions in the country”.

Moreover, economic uncertainty fell in a number of sectors in May, including those of services and construction, as well as the retail sector.

Conversely, uncertainty rose among firms in the industrial sector, as well as among households.

“Firms’ selling price expectations, as well as consumers’ price expectations, remained at extremely high levels, indicating the continuation of upward price pressures,” the report noted.