Cyprus is grappling with heightened economic uncertainty as October witnessed a marked spike in the Economic Policy Uncertainty (EPU) index, escalating to 256.63 from September’s relatively stable 202.84, according to the latest report from the University of Cyprus’ Economic Research Centre (CypERC).
This surge in uncertainty is notably linked to the outbreak of conflict between Israel and Gaza on October 7, 2023.
Geographical proximity to the conflict area has significantly impacted Cyprus, reflected in the notable uptick in its EPU index.
Interestingly, the European EPU index remained largely unaffected by the conflict, distinguishing it from Cyprus’s economic volatility triggered by the regional unrest.
The EPU index, introduced by Baker, Bloom, and Davis in 2016, serves as a quantifiable measure of economic uncertainty related to the efficacy of economic policies. The index is developed through textual analysis, analyzing newspaper articles featuring words associated with Economy (E), Policy (P), and Uncertainty (U).
The University of Cyprus’ Economic Research Centre constructs and monitors the EPU index for Cyprus, showcasing its impact on the country’s economic landscape.
The graph presented by the centre illustrates a historical perspective, showcasing fluctuations in economic uncertainty. Until 2007, uncertainty levels in Cyprus were comparatively lower and less volatile.
However, post-2008, a consistent rise in uncertainty has been observed, with peaks registered in 2012 during the banking crisis, in 2020 amid the Covid-19 pandemic, and in 2022 due to the Russia-Ukraine conflict.