Central Bank of Cyprus Governor Constantinos Herodotou, has said that he expects the country’s economy to experience a “serious recession” in 2020 due to the coronavirus pandemic.
“The economy’s prospects for 2020 and afterwards are dramatically overshadowed by the negative developments of the coronavirus pandemic,” Herodotou stresses in an introductory note included in the Central Bank’s annual report for 2019, which was released on Thursday.
The Central Bank Governor says that the institution’s December 2019 projections had noted that in general downward risks for the Cypriot economy continued to be present, which could decelerate its future course.
He continues noting that factors such as external geopolitical developments to do among other things with Brexit and trade tensions and the high level of private debt in addition with the challenges faced by the banking sector, continue to constitute likely risks, as he underlines, “which we will have to face even after the pandemic, but at an obviously greater degree.”
According to Herodotou the progress made in 2019 supported the fast and coordinated actions of the government and the Central Bank in dealing with the economic impact of the pandemic crisis.
He further says that the measures taken aim to reduce the negative impact of the cost in households, businesses and the real economy and stresses that “after the crisis is over we will have to remain focused in the effort of full consolidation of the economy and of our banking system.”
This, Herodotou points out, “will lay the foundations on which a long-term and at the same time sustainable growth course of the Cypriot economy can be based on.”
Referring to the Central Bank’s projections of December 2019, he says that during the period of 2020 -2022 slightly lower growth rates were expected to be recorded and he stresses that “this projection has been turned upside down by the coronavirus pandemic and in Cyprus, on the basis of which it is expected that 2020 will record a serious recession.”
Despite unprecedented developments and very negative short-term impact, we must consider how much worse the situation would be had the progress of 2019 not been achieved both in macro-economic and fiscal policy issues as well as on matters to do with the stability of the banking and financial sector, he underlines.
In its annual report for 2019, the Central Bank of Cyprus says that the pandemic “constitutes an extremely serious internal and external shock which is affecting to begin with the side of demand and dealing with which has to do with the necessary measures taken for the protection of public health and measures of expansionary monetary policy to boost economic activity.
“The financial impact cannot be quantified with precision for the time being,” the report reads, “given that there are not sufficient economic data for 2020 yet, nor can the pandemic’s duration be projected.”
Nevertheless, the Central Bank continues, it should be expected that a significantly downward review of projections for 2020 will occur, in accordance with the estimates of all international organisations for a deep recession at international level.
“The question is not whether a recession will take place but how extensive it will be,” the Central Bank says.