UCy: GDP growth fore­cast at 3.9% for 2018

Financial Mirror (Cyprus) - - CYPRUS -

The Cypriot econ­omy is fore­casted to con­tinue to grow at a robust pace in 2018 and next year, the Univer­sity of Cyprus Eco­nomic Re­search Cen­tre said Tues­day.

In 2018, real GDP is pro­jected to in­crease at 3.9% while next year growth will down as GDP is pro­jected to grow by 3.5%. UCY’s 2018 GDP growth out­look of 3.9% is un­changed from the July fore­cast but the 2019 pre­dic­tion is up from 3.3%

The main driv­ers of the UCY out­look in 2018 and 2019 in­clude “vig­or­ous growth in do­mes­tic ac­tiv­ity, i mprove­ments in the do­mes­tic labour mar­ket, strong fis­cal per­for­mance in Cyprus and con­ducive do­mes­tic fi­nan­cial con­di­tions (e.g. low lend­ing in­ter­est rates, delever­ag­ing, ex­pan­sion of do­mes­tic de­posits and credit).

The mild slow­down in growth pro­jected for 2019 is driven by the re­cent de­cline in eco­nomic sen­ti­ment, the pickup of en­ergy in­fla­tion, the re­cent slow­down in the EU and Euro­pean in­ter­est rates and spreads which re­flect EU and euro area un­cer­tain­ties.

UCY econ­o­mists said the down­side risks to the out­look were the “high lev­els of pri­vate debt and non-per­form­ing loans (NPLs), de­spite re­cent progress, pose risks to the sound­ness of the bank­ing sys­tem, eco­nomic con­fi­dence and growth prospects”.

It said

the

high

level

of

pub­lic

debt to­gether with the stronger con­nec­tion be­tween bank and sov­er­eign risk, af­ter the res­o­lu­tion of the Cyprus Co­op­er­a­tive Bank, “ren­ders Cyprus vul­ner­a­ble to shocks”.

“De­lays in the im­ple­men­ta­tion

of struc­tural re­forms (e.g. ju­di­cial sys­tem, pub­lic ad­min­is­tra­tion), given the high level of pub­lic debt and prob­lem­atic loans, may dent eco­nomic con­fi­dence, the sus­tain­abil­ity of pub­lic fi­nances and growth.”

Un­cer­tainty cre­ated by Italy’s EU bud­get woes, with pos­si­ble neg­a­tive ef­fects on the bor­row­ing costs of other vul­ner­a­ble euro area coun­tries; weaker-than-ex­pected growth in the UK due to a fail­ure of Brexit ne­go­ti­a­tions; com­pet­i­tive­ness pres­sures on Cyprus tourism, are all pos­si­ble ob­sta­cles.

“Up­side risks to the out­look are as­so­ci­ated with faster-than-fore­casted growth in Rus­sia as well as with the im­ple­men­ta­tion of pri­vate in­vest­ment projects (e.g. in­vest­ments re­lat­ing to tourism, prop­erty de­vel­op­ments, en­ergy) and pub­lic in­vest­ments,” said UCY.

The growth fore­cast for 2018 in UCY’s Oc­to­ber out­look is in line with the pro­jec­tions of 4% re­leased by the IMF and the Min­istry of Fi­nance.

But for 2019, the growth fore­cast is more con­ser­va­tive than the pro­jected rates of 4.2% and 3.8% given by the IMF and the Min­istry of Fi­nance, re­spec­tively.

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