Ukraine war will slice 2% off Cyprus GDP

Cyprus is bracing to lose out on revenue from Russian and Ukrainian tourists, as the government the economy will lose around 2% of its GDP in 2022.

As the war in Ukraine rumbles on, with sanctions on Russia taking their toll on the economy, Finance Minister Constantinos Petrides said that Cyprus can no longer rely on the business of Russian and Ukrainian tourists.

Speaking at the House’s Finance Committee, Petrides said the EU flight ban imposed on Russian aircraft means writing off some 800,000 arrivals of Russian and Ukrainian visitors.

Arrivals from the two countries were to contribute 20% of all tourists this year.

Cyprus had hoped for a tourism rebound in 2022, coming somewhere close to its all-time record of 3.96 million tourist arrivals in pre-coronavirus 2019.

The minister said an effort will be made to fill the gap with tourists from other markets. However, he warned: “If Russian and Ukrainian losses in tourism are not fully covered, the consequences for the country this year will be between 1.5% and 2% of GDP”.

According to an earlier Central Bank of Cyprus estimate, the island’s GDP was expected to grow by 3.6% in 2022.

Last year, Cyprus GDP reached EUR 21.8 bln with an expected growth 3.6%, a 2% loss would be close to half a billion euros.

Apart from the loss in tourist-generated revenue, Petrides said some Russian companies based in Cyprus have already been affected by banking sanctions.

Petrides said that just as it did during the pandemic, Cyprus will have to rely on its capabilities to deal with the consequences of the war.

EU Finance Ministers (Ecofin) will be discussing measures to collectively address challenges posed by the war in Ukraine.

The biggest risk for Cyprus and the European Union is a hiking inflation rate, due to the bloc’s dependence on Russian energy resources and barley.

Petrides did not rule out the possibility of reinstating some support measures employed by the government to help businesses during the coronavirus pandemic.

He also said that, before the outbreak of the pandemic, the Cypriot economy was considered by many to be fragile, which, as he noted, was proven to be wrong.

Sanctions imposed on Russia by the EU will remain even if the war ended today.

Petrides reiterated that the financial sector of Cyprus will not be greatly affected, as there is no exposure to Russian bonds, Russian deposits have decreased, while the Russia’s Central Bank does not maintain reserves in Cyprus.