Hel­lenic Bank projects 4% GDP growth for Cyprus

Financial Mirror (Cyprus) - - CYPRUS -

Hel­lenic Bank be­lieves Cyprus’ macroe­co­nomic out­look is pos­i­tive and projects base­line GDP growth to be 4% this year and 3.9% in 2019.

In its eco­nomic re­view, the bank says that “the re­cov­ery phase has passed, and the econ­omy is now en­ter­ing its growth phase.”

“Cyprus’ macroe­co­nomic out­look is pos­i­tive and is ac­com­pa­nied by a sig­nif­i­cant in­crease in real gross do­mes­tic prod­uct dur­ing the first nine months of 2018, ro­bust em­ploy­ment growth and fur­ther im­prove­ment in key do­mes­tic indi­ca­tors.”

Hel­lenic said growth “is ex­pected to be sup­ported by pri­vate con­sump­tion and in­vest­ment and by an im­prov­ing and ro­bust labour mar­ket.”

Pub­lic ex­pen­di­ture is also ex­pected to con­trib­ute pos­i­tively to growth through higher in­vest­ment ex­pen­di­tures.

“The pick-up in do­mes­tic de­mand is ex­pected to be re­flected in im­proved labour mar­ket con­di­tions with un­em­ploy­ment de­creas­ing to 8.2% in 2018.”

In­fla­tion in 2018, “is ex­pected to re­main at rel­a­tively low lev­els, at around 0.7% in 2018.”

The Eco­nom­ics Re­search De­part­ment is en­cour­aged “the new growth phase, help­ing to avoid the re­peat of the boom-bust cy­cle ex­pe­ri­enced in the past, has not been driven by gov­ern­ment through pub­lic spend­ing and the re­lated mul­ti­plica­tive role, nor is it funded from un­sus­tain­able credit-fu­elled con­sump­tion as ob­served in the pre-cri­sis pe­riod.”

It said pub­lic fi­nances have been con­sol­i­dated to a large ex­tent to se­cure the sus­tain­abil­ity of pub­lic debt.

“Sig­nif­i­cant progress has been made to re­struc­ture and re­store con­fi­dence in the Cypriot bank­ing sys­tem.”

“Cypriot banks have come a long way and are on a stronger foot­ing.”

It refers to the sale of non-per­form­ing loan (NPL) port­fo­lios by Hel­lenic Bank and Bank of Cyprus, the dis­posal of NPLs by Al­pha Bank Cyprus out­side the sys­tem, the re­cent adop­tion of leg­isla­tive amend­ments, aimed at fa­cil­i­tat­ing fur­ther sales of loans and strength­en­ing the fore­clo­sure and in­sol­vency tool­kits and the de­sign of a so­cial pol­icy pro­gramme (Estia) by the gov­ern­ment aimed at pro­vid­ing fi­nan­cial as­sis­tance to vul­ner­a­ble dis­tressed bor­row­ers.

“The im­ple­men­ta­tion of im­por­tant struc­tural re­forms will help strengthen the com­pet­i­tive­ness of the Cypriot econ­omy,” said the re­view.

Out­stand­ing re­forms in­clude the im­ple­men­ta­tion of the pri­vati­sa­tion agenda, pub­lic ad­min­is­tra­tion, lo­cal gov­ern­ment and the health­care sec­tor.

“Fur­ther ef­forts should be made to im­prove and broaden Cyprus’ dig­i­tal pub­lic ser­vices (e-gov­ern­ment) in­clud­ing the pro­mo­tion of elec­tronic pay­ments, which in turn will help de­velop a sus­tain­able econ­omy.”

Ac­cord­ing to Hel­lenic’s re­view, de­spite the im­por­tant steps taken to­wards restor­ing the pos­i­tive eco­nomic cli­mate, some de­gree of un­cer­tainty re­mains, as the coun­try still has is­sues to re­solve, such as the high level of non-per­form­ing ex­po­sures (NPEs), high un­em­ploy­ment and the high pri­vate and pub­lic debt, which are how­ever on a steady de­clin­ing trend.

The eco­nomic out­look may be neg­a­tively in­flu­enced due to the un­cer­tainty sur­round­ing de­vel­op­ments in Italy, a slower than ex­pected growth in the UK, the un­cer­tainty of Brexit and a weaker pound.

“Also, in­creased geopo­lit­i­cal ten­sions in the Mid­dle East and East­ern Mediter­ranean, could trig­ger ad­verse spillovers to eco­nomic con­fi­dence, tourism and con­se­quently to the ag­gre­gate eco­nomic ac­tiv­ity.”

Hel­lenic also ar­gued that geopo­lit­i­cal ten­sions in neigh­bour­ing coun­tries ren­der Cyprus a safer tourist des­ti­na­tion and could there­fore coun­ter­bal­ance, any po­ten­tial re­duc­tion in tourist traf­fic from the UK.

“Up­side risks per­tain to the buoy­ant con­fi­dence lead­ing to stronger do­mes­tic de­mand as well as if ex­ploita­tion of Cyprus’ nat­u­ral re­sources prove fi­nan­cially vi­able.”

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