Wide range in Cyprus growth forecasts

Economists disagree over how fast the Cyprus economy will grow this year, with the University of Cyprus Economics Research Centre (ERC) forecasting a bullish 2.4% in 2016 but the Bloomberg consensus based on an average of several forecasters expecting only 1.8% growth in 2016 and 2% in 2017.

Real GDP grew by 1.6% in 2015, its first year of growth since 2011.

The ERC names an improvement in leading indicators in the first quarter, declining oil prices that have a positive effect on real incomes, falling interest rates and strengthening confidence among some of the main reasons for its forecast.

“Many activity-related domestic leading indicators (e.g. tourist arrivals, credit card usage by locals and tourists, registrations of motor vehicles, cement sales, new company registrations) continued to pick up over January – March 2016,” the ERC said.

An upturn in tourism figures may mean that the ERC figures turn out to be closer to reality according to Fiona Mullen, Director of Sapienta Economics.

“Our end-March forecast was for 2% this year. But that was before we saw continued positive news on tourism,” she said.

“We can see that despite a slide in sterling and continued economic weakness in Russia, Cyprus has ‘got lucky’ again, with a diversion of Russian tourists from Turkey and continued security concerns about other tourism destinations such as Egypt.”

Will deflation end?

Economists also differ about inflation. While the Bloomberg consensus expects deflation to coming to an end this year, with prices rising by 0.5% in 2016 and 1.3% in 2017, the ERC (which forecasts only for 2016) expects prices to continue falling: by 0.8% in 2016.

According to the Bloomberg consensus forecast, the unemployment rate will reach 15.1% in 2016 and 14.5% in 2017 and the budget will record a small deficit of 0.1% of GDP in 2016 and a surplus of 0.4% in 2017.

The current-account deficit is expected to narrow from 4.6% of GDP in 2016 to 4.2% in 2017.

The ERC does not publish forecasts on unemployment, the budget or current account.

Source: In-Cyprus

Arab News Express