Complacency main risk to recovery, says Finance Minister

The biggest main risk to satisfactory and sustainable growth rates is “our bad self”, Finance Minister Harris Georgiades said on Tuesday, following the release of the Statistical Service’s preliminary estimate for a growth rate of 2.8% for the last quarter of 2016 and the previous year as a whole.

“The Cypriot economy is recovering, we are recovering lost ground and we must remain stable and committed to the effort,” for economic recovery, the Minister told a press conference.

“We have succeeded in practice to combine the healthy development of the economy with the sustainability of public finances and that is the key feature of our economic policy to which we remain committed,” he said.

“We have been through a deep and prolonged recession, clearly we are on a path of recovery and we must maintain such satisfactory growth rates in the coming years and this is the prospect and our estimate for 2017,” Georgiades noted.

The Minister said that this year Cyprus is expected to register a growth rate of 2.5% to 3%.

“There is an increase in private consumption, a positive contribution by all the productive sectors, a decrease in unemployment from 14.9% at the end of 2015 to 13.3%, and an increase in employment by 2.7%” he said.

Georgiades noted that the fiscal balance for 2016 remains balanced with a small surplus of EUR 9.1 mln, or 0.1% of GDP.

He added that revenue from VAT rose by 7% and the contributions to social insurance by 4.7%.

Regarding risks related to the impact of Brexit, geopolitical events in the region and the world in general, and the non-performing loans in the local banking system, the Minister said that these have been taken into account by the ministry and have been included in the 2017 state budget.

Invited to comment on the European Commission’s report that the high level of NPLs could lead to a protracted period of tight credit conditions and low growth, Georgiades said that there is competition among the banks to lend money.

New and foreign investments create opportunities for growth and economic activity that circumvent the objective problem of expanded private lending, accumulated in previous years, he noted.

According to the Cyprus Statistical Service (Cystat) flash estimate, GDP growth in real terms during the fourth quarter of 2016 is estimated at 3.0% year on year and 2.8% seasonally adjusted data, reporting growth for the seventh consecutive quarter.

On a quarterly basis the economy grew by 0.5% in the last quarter of 2016, Cystat said.

The statistical service said the increase of GDP growth is mainly attributed to the Hotels and Restaurants sectors, Retail and Wholesale Trade, Manufacturing, and Construction. The Financial Services sector recorded negative growth.

Seasonally adjusted GDP rose by 0.4% in the euro area (EA19) and by 0.5% in the EU28 during the fourth quarter of 2016, compared with the previous quarter, according to a flash estimate published by Eurostat, the statistical office of the European Union.

In the third quarter of 2016, GDP in Cyprus, the Eurozone and the EU28 grew by 0.8%, 0.4% and 0.5%, respectively.

Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 2.8% in Cyprus, 1.7% in the euro area and by 1.8% in the EU28 in the fourth quarter of 2016, after +2.9%, +1.8% and +1.9%, respectively in the previous quarter.

In Cyprus, seasonally adjusted GDP rose by 0.4% on Q1 2016 compared to Q4 2015, by 1.1% on Q2 2016 compared to Q1 2016, by 0.8% on Q3 2016 compared to Q2 2016 and by 0.5% on Q4 2016 compared to Q3 2016. On an annual basis, GDP rose by 2.8% in Q1, by 2.8% in Q2, by 2.9% in Q3 and by 2.8% in Q4.

During the fourth quarter of 2016, GDP in the United States increased by 0.5% compared with the previous quarter (after +0.9% in the third quarter of 2016). Compared with the same quarter of the previous year, GDP grew by 1.9% (after +1.7% in the previous quarter).