Central Bank governor Constantinos Herodotou used his keynote address at the Cyprus Maritime Forum on Tuesday to discuss economic developments in the euro area, as well as the performance of the Cypriot economy during the previous year.
Regarding Cyprus, Herodotou noted that the economy exhibited notable resilience in 2022, growing by 5.6 per cent, despite the negative international environment.
“This is in part due to the higher than expected activity in the tourism industry, the non-dependence of the Cypriot economy on Russian gas, as well as the reality that the Cypriot banking sector has very limited exposure to the Russian economy and therefore has not been affected by the sanctions on Russia,” Herodotou said.
“According to the latest available data, deposits from Russian Federation citizens amount to only 2.17 per cent of total deposits of the Cyprus banking sector at the end of January 2023, while loans amount to only 0.2 per cent of total loans,” he added.
The central bank governor also said that the shipping sector is undoubtedly another important pillar of Cyprus’ economic success.
“Limassol, Cyprus’ maritime capital, is the home of influential names in the shipping industry, which boosted the country to the top ranks of the sector,” Herodotou stated.
“Indicatively, Cyprus is the largest third-party ship management centre in the European Union, one of the largest in the world and is primed for further growth,” he added.
What is more, Herodotou explained that the importance of the shipping sector is evident in the balance of payments data, where it ranks third in terms of its contribution to the total value of exports of services, with a share of 19 per cent for 2021.
The only two industries with a higher contribution are the financial services and ICT sectors, with a share of 32 per cent and 23 per cent respectively.
Regarding foreign investment in Cyprus, which constitutes a significant driver for development, Herodotou said that in recent years, major multinational firms in the information, communication and technology industry relocated or expanded their activities in Cyprus.
In turn, Herodtou explained, this has supported Cyprus’ GDP and reinforced the vision to transform the island into an emerging technology hub in the Mediterranean.
“Cyprus’ importance as a foreign investment hub is also reflected in the Greenfield FDI Performance Index, created by FDI Intelligence, according to which in 2021, Cyprus was ranked in 18th place out of 84 countries included in this index – climbing by 50 places compared to 2020,” Herodotou said.
In terms of global economic developments, the CBC governor said that even though both the US and the euro area were impacted by rising inflation, the factors behind each case were different.
“In the United States, demand factors have been the main determinants of the upward inflation trend, while in the euro area, price increases were, initially, mostly driven by the supply shock caused by the energy crisis,” he said.
“The second main difference relates to the labour market dynamics of the two economies,” he added, noting that “the US labour market exhibited at a relatively early stage, a greater degree of tightness, evidenced by stronger wage growth in the US than in the euro area”.
Additionally, Herodou noted that this higher degree of US labour market tightness was another key factor in explaining the medium-term inflationary pressures.
“By contrast, in the euro area, the pick-up in wage growth is relatively a more recent phenomenon,” he said.
“Characteristically, US labour costs increased by 5.8 per cent in 2022, and almost 12 per cent in the two-year period 2020-2022,” he added, noting that in the euro area, data until the third quarter of 2022 show that labour costs have increased by 2.8 per cent, with a cumulative growth of 7 per cent over the same period of 2020-2022.
Herodotou concluded by saying that “the shipping sector is and will continue to be the backbone of the global economy”.
“Cyprus, a tiny spot on the planet, continues to strengthen its role in the shipping sector,” he said.
“As a hub for ship management, ship owning and vessel chartering services, it aims to maintain and enhance further the competitiveness and prospects of the sector.”