Ukraine war and soaring inflation continue to bruise Cypriot economy

External geopolitical uncertainty and soaring inflation continue to trouble the Cypriot economy, causing a decline across a number of leading economic activity variables for the second month in a row, according to a report released this week by the University of Cyprus Economic Research Centre.

Based on the report, the Cyprus Composite Leading Economic Index (CCLEI) experienced a year-on-year decrease of 2.4 per cent in July 2022, following a year-on-year decline of 1.5 per cent recorded in June 2022, with the latter month updated to reflect the most recently revised data.

“The ongoing war between Russia and Ukraine, the high inflation, and the growing uncertainty are reflected in the negative year-on-year growth rate of the CCLEI in July 2022,” the report said.

The report noted that the Economic Sentiment Indicators (ESI), both in the euro area and Cyprus, worsened in July 2022, compared to the same month in 2021.

In relation to this, there was a particular decline in terms of the consumption sector, where the climate weakened significantly.

At the same time, the report also took into account the international Brent Crude oil price which remained at high levels in July 2022, contributing to the negative growth rate.

The negative ramifications of soaring energy costs are also reflected in the temperature-adjusted volume of electricity production, which became worse in July 2022 compared to July 2021.

“In contrast, most of the CCLEI’s domestic components contribute to the restraint of the CCLEI’s drop – and therefore to the rise of the Cypriot economy, recording an acceleration in their growth rate in July 2022 compared to the corresponding month in the previous year, despite the difficult international economic climate,” the report explained, highlighting the influence that external events are having on the country.

“In particular, the growth rate of total property sales contracts, the value of credit card transactions, the growth rate of tourists’ arrivals, as well as according to preliminary data, retail sales volume, have accelerated,” the report added.

As an indication of the real estate’s contribution, property sales in Cyprus reached €1.3 billion during the first quarter of 2022 alone, with a total of 5,258 property sales taking place during that time period, according to a report by the land registry.

In addition, real-estate sales in Cyprus rose 39 per cent year-on-year during the first six months of 2022.

Finally, the Economic Research Centre’s report concluded by saying that “the ongoing war between Russia and Ukraine and all its related implications continue to burden the growth prospects of the international and, by extension, the Cypriot economy”.