The Cyprus economy has some buffers but limited resistance to tackle a potential economic slowdown because of the coronavirus, Phileleftheros reports.
That’s why the government is now focusing on the economic implications of the outbreak and is drafting response scenarios in case these spread to critical sectors of the economy. Mainstays of GDP such as the hotels and wider tourism sector are particularly vulnerable to the fall out from the coronavirus.
The island’s construction sector had shown signs of fatigue even before the epidemic hit, and this was evident from the loss of interest by foreigners in the citizenship by investment scheme, through which luxury property was sold.
Part of the shock the business world may face, especially the wider tourism industry, is expected to be transferred, de facto, to the banking system.
Phileleftheros has compiled data that clearly shows the economy’s vulnerabilities and existing interactions.
The construction and tourism sectors are two of the key pillars for the island’s GDP growth. The growth rate of the Cypriot economy reached 3.2% in 2019. Overall, GDP stood at €21.34 billion in 2019, up by €668 million from 2018.
Data shows that the construction sector contributed €1.52 billion. And the wholesale and retail trade sector, which includes hotels and restaurants, recorded an increase of 2.7% year-on-year.
The industry’s contribution to the economy stood at €4.61 billion from €4.49 billion the year before, that is, up by €121.1 million within a year.
This means that if the sectors contributing to GDP growth are affected, there will be a slowdown which is expected to be evident by the end of the second quarter of 2020.
At the same time, the 2020 budget was drafted based on tourism revenue forecasts. But if potential losses are high then the Treasury will need to revise forecasts and this will apply to most EU countries.
Overall government surplus amounted to €603 million in 2019 (2.8% of GDP). The public debt is estimated to have dropped to €20.8 billion (96.9% of GDP) from €21.3 billion in 2018. In 2020, public debt was projected to decline to 91.1% of GDP at a growth rate of 2.9%.
Despite the improvement recorded in 2019, international monetary organizations such as the IMF were still concerned over the financial risks of government payroll costs and the rise in expenses from the operation of the General Health System (Gesy).
And this assessment was before even the coronavirus fear and its consequences were in the picture with the island’s fiscal balance now up in the air.
In addition, the government now has to also handle the decision pending before the Supreme Court’s decision on the cut salaries and pensions of civil servants.
A positive decision will certainly raise another major concern at the Finance Ministry.