Good Growth projected for Cypriot Economy
Continued Growth Expected for Cypriot Economy, with GDP growth above 3% until 2021.
|Published on: 27 December 2018|
According to the Central Bank of Cyprus (CBC), the Cypriot economy will continue to remain strong, with good GDP growth above 3% until 2021. This will be mainly sustained by strong domestic demand, economic activity and foreign investments.
Economic growth in Cyprus will reach 3.8% in 2018 and will decelerate to 3.7% in 2019, while economic expansion is projected to slow further to 3.2% and 3.3% in 2020 and 2021 respectively.
Main drivers for this growth will be domestic demand, economic activity and investments. According to the CBS, large private investments amounting to €3 billion with a sizeable funding percentage coming from foreign capital have already begun and are projected to conclude by 2021. These investments include projects in renewable energy infrastructure, property and residential housing construction, as well as commercial and mixed developments, such as enhancement of the port, marinas, hotels and the new integrated casino resort, to be the largest in Europe.
Such projects will no doubt provide a huge stimulus to the Cypriot economy over the coming years, bringing in capital, enhancing the country’s positioning, and importantly creating jobs and business activity for locals.
However, the CBC also pointed out the continued deleveraging efforts by the domestic private sector and the banks' efforts to rationalise their balance sheets and reduce the high burden of non-performing loans will weigh down economic growth.
The CBC said the recent sales of NPL portfolios such as the sale of €2.7 billion of NPLs by the Bank of Cyprus to Apollo Capital have improved their asset quality, boosting investor and depositor confidence.
“Despite the noted progress which will reduce NPL rate under 30% we are still far from the European average levels of 3.6%,” the CBC stressed.
Moreover, the CBC expressed reservations over a government scheme called ESTIA scheme aiming to subsidise part of the repayment plan for mortgage defaulters. Approved by the EU, the plan is expected to be launched in 2019 and will cost the government around €33 million annually over the next 25 years.
“Our concerns are premised mainly on the possible moral hazard, which could be manifested through deliberate defaults by borrowers which hope for future state assistance or believe the scheme is unfair as it subsidises strategic defaulters,” the CBC said.
“Therefore, any scheme should assist the efforts by all stakeholders for the creation of a repayment culture and not to increase risks for the contrary.”
Cyprus will continue to post a strong fiscal position with high fiscal surpluses but cautioned against demands which increase state expenditure.“The trend for demands which increase state spending should not lead to a slippage. Any increase in state expenditure should be controlled and targeted to avoid a fiscal derailment.”
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