Sapi­enta re­vises up Cyprus 2014 GDP de­cline to 3.1%

Financial Mirror (Cyprus) - - FRONT PAGE -

The Cyprus econ­omy will shrink by a less than ex­pected 3.1% in 2014, ac­cord­ing to the lat­est monthly fore­cast by Sapi­enta Eco­nom­ics, a Ni­cosia-based con­sul­tancy.

Real GDP fell by a sea­son­ally ad­justed 4.1% year on year in the first quar­ter of 2014 (0.7% quar­ter on quar­ter), com­pared with 4.9% in the fourth quar­ter of 2013 and 5.4% for the whole of 2013.

In 2013 Cyprus suf­fered a bank­ing cri­sis, leading to an un­prece­dented de­ci­sion to im­pose losses on in unin­sured bank de­pos­i­tors and other cred­i­tors to re­cap­i­talise Bank of Cyprus, the largest lender in what was known as a bail in or hair­cut.

In May the troika of in­ter­na­tional lenders re­vised up its ex­pected 2014 de­cline to 4.2% from a pre­vi­ous es­ti­mate of 4.8%.

“One of the rea­sons I am fore­cast­ing a lot less than 4% is sim­ple math­e­mat­ics,” says Sapi­enta Di­rec­tor, Fiona Mullen.

“The sec­ond-quar­ter de­cline of 6% in 2013, right af­ter the peak of the cri­sis, was the steep­est. So you are not go­ing to get an­other 4.1% de­cline in the sec­ond quar­ter of this year. But a whole range of other in­di­ca­tors also show that the de­cline has re­ally bot­tomed out.”

Mullen notes that plas­tic card spend­ing rose year on year for three straight months in March to May, the falls in re­tail sales and im­ports have been get­ting milder and there are pos­i­tive re­ports from the tourism sec­tor about ar­rivals this year.

“Other de­vel­op­ments boost the sen­ti­ment also con­tinue to in­di­ca­tors: bank de­posits rose in April for the first time in 16 months, Bank of Cyprus has made a small profit thanks to sta­ble non-per­form­ing loans, govern­ment fi­nances are im­prov­ing and it plans to tap the bond mar­kets nearly two years ear­lier than ex­pected. This is why I am ex­pect­ing a de­cline of just 3.1% this year.”

Sapi­enta Eco­nom­ics is less op­ti­mistic for 2015, how­ever. The troika of in­ter­na­tional lenders ex­pects growth of 0.4%.

“We have had mas­sive dis­in­vest­ment: in real terms fixed in­vest­ment was smaller in 2013 than it was in 1995,” says Mullen.

“On top of that we have a very high cor­po­rate and house­hold debt bur­den, a bank­ing sec­tor un­able to lend and we are still a long way away from nat­u­ral gas rev­enues.

“So while I am op­ti­mistic for Cyprus in the short term, I am far more cau­tious about the econ­omy’s long-term ca­pac­ity to grow,” Mullen con­cluded.

Sapi­enta Coun­try Anal­y­sis Cyprus is avail­able at https://sapi­en­tae­co­nomics.com/coun­try­anal­y­sis-cyprus/

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