Cyprus economic climate deteriorates in February

Cyprus’ Economic Sentiment Indicator (ESI) witnessed a decline of 2.1 points in February 2024, compared to January 2024, indicating a worsening economic climate, according to a report released on Tuesday by the University of Cyprus’ Economic Research Centre (CypERC).

The decline in the ESI, according to the report was attributed to weakened consumer confidence and a deterioration in the overall business climate across all sectors, except for the construction industry.

Furthermore, the decrease in the ESI in February is primarily linked to lower expectations for business activity and more pessimistic assessments of the economic situation for households and the country as a whole.

Moreover, the report highlighted a decline in the climate for services due to unfavourable evaluations of the last quarter’s work cycle and more restrained expectations for the upcoming quarter.

According to the findings, the deterioration in the retail trade and manufacturing sectors resulted from downward revisions in sales expectations and production, respectively.

In the construction sector, the climate strengthened due to more favourable evaluations of ongoing projects and positive expectations for the number of employees in the industry for the next quarter.

Consumer sentiment experienced a drop in February, with respondents expressing more negative views on their recent and future economic situations.

In addition, consumers appeared more pessimistic about the future economic situation in Cyprus.

However, the report noted that the Economic Uncertainty Index decreased for the second consecutive month in February, driven by lower uncertainty among businesses, especially in the construction sector, and consumers.

The assessment of the economic climate in Cyprus is conducted through the participation of the University of Cyprus’ Economic Research Centre (CypERC), in collaboration with RAI Consultants Ltd, in the European program Joint Harmonised European Union Programme of Business and Consumer Surveys.

The project is financed by the European Union, the Ministry of Finance, and the University of Cyprus.

Consumer Confidence & Economic Sentiment in the European Union

Meanwhile, according to a flash estimate by the Directorate-General for Economic and Financial Affairs of the European Commission (DG ECFIN), the consumer confidence indicator showed a slight improvement in February 2024, increasing by 0.4 percentage points in the European Union (EU) and 0.6 percentage points in the euro area.

Despite this uptick, consumer confidence levels remain significantly below the long-term average, standing at -15.8 points for the EU and -15.5 points for the euro area.

Moreover, for January 2024, the Economic Sentiment Indicator (ESI) held steady in both the EU (96.0 points) and the euro area (96.2 points), showing no significant change.

However, the Employment Expectations Indicator (EEI) experienced a decline in both regions, dropping by 0.8 points to 102.1 in the EU and 0.9 points to 102.5 in the euro area. Notably, while the ESI remained consistent, the EEI continued to surpass its long-term average.

What is more, in January 2024, the DG ECFIN’s flash estimate of the consumer confidence indicator reflected stability in the EU with a marginal decrease of 0.2 percentage points compared to December 2023.

In contrast, the euro area saw a more significant decline of 1 percentage point. Finally, it should be noted that at -16.2 points for the EU and -16.1 points for the euro area, consumer confidence levels persistently linger below the long-term average.

Cyprus’ Composite Leading Economic Index

It should be noted that earlier this week, the CypERC also reported that Cyprus’ Composite Leading Economic Index (CCLEI) annual growth rate slowed to 0.9 per cent in January 2024, down from 1.7 per cent and 2.1 per cent in the previous two months.

The university explained that geopolitical tensions, including conflicts in the Middle East and the Russia-Ukraine war, impacted the CCLEI.

Additionally, the economic downturn in the eurozone and negative growth in real estate sales and tourist arrivals also contributed to its decline.

However, a slight decline in Brent Crude oil prices and growth in domestic sectors like retail trade and electricity production supported a positive growth rate. The CCLEI serves as an early indicator of economic shifts.