Cyprus Economy Fares Better than Most

Cyprus News -15.6.09 

A report published this month by PricewaterhouseCoopers showed that, unlike most European economies, positive growth is expected for Cyprus in 2009, although it will be at a weaker pace than in recent years. They anticipate a slowdown in tourism and the construction sectors and say this is the likely to be the main cause for weaker economic growth.

These predictions concur with first quarter 2009 figures published this week by the Cyprus government. The Financial Mirror, the popular Cyprus business website, reported a very mixed bag of positive and negative growth across a number of sectors. In terms of real GDP growth, figures confirmed the ‘flash estimate’ released in May and showed that Cyprus is narrowly avoiding recession, although it recorded 0% real GDP growth in the first quarter of 2009. Year-on-year growth was 1.5%.

Recession is technically defined as two consecutive quarters of negative growth. In the fourth quarter of 2008, GDP growth was 0.5% and the Cypriot economy one of only three in the Eurozone to show positive growth (the others were Greece and Slovakia). Many financial experts believe that government spending – which was up by 12.2% in the first quarter of 2009 – is an important reason why growth hasn’t contracted more.

In stark contrast, private consumption - which accounts for 70% of GDP – slowed very sharply in 2009, down to just 2.7%, compared with 9.8% in the same period of 2008. In addition, retail spending and car sales have both shown significant decreases as Cypriot consumers tighten their belts to weather the economic storm.

Although there was an increase in non-construction investment (mainly public projects) of 9%, construction growth slowed to 3.4% and there was a 2% decline in housing construction investment. The banking sector and real estate and rental activities did rather better than expected and rose by 4.5%.

So despite troubled economic times, Cyprus is holding its own. Head of Macro Consulting at PricewaterhouseCoopers, Yael Selfin, said that consumer spending will weaken over the coming months as unemployment rises, but he added that, “The Cypriot economy is expected to fare better than most European economies over the next 2 years.”