The European Commission on Thursday said it expected the Cyprus economy to grow by 3.6% in 2018, on the back of a nine year high of 3.9% in 2017.
In its summer economic forecast it said that in the first quarter of 2018, the economy had continued its momentum, posting 3.8% (y-o-y) growth driven by solid domestic demand and, lately, exports.
It said consumer sentiment continued to improve, while business confidence across major sectors either increased or levelled off, suggesting continued momentum in the coming quarters.
The composition of growth shifted somewhat in early 2018: investment, after breaking an historic high in the last quarter of 2017, fell in the first quarter of this year. Goods exports, by contrast, more than doubled compared to the previous quarter. Shipping acquisitions moderated, while ship sale/deregistration reached record high levels. Excluding shipping activity, the underlying trends remained broadly stable and this compositional shift is expected to be temporary, says the EC.
Furthermore, according to the European Commission, exports of services were subdued in the first quarter of the year, but “this soft patch is likely to be overcome in the quarters ahead thanks to the marked increase in tourist arrivals already recorded in the spring months as well as the completion of new hotels for tourists.”
The Forecast also shows that private consumption continues to expand, supported by rapidly rising employment and gradually increasing wages, while survey data reveal that hiring is set to continue strongly in the near future, giving a further boost to disposable income.
Finally, the Commission states that “Cyprus’ struggling financial sector, which has been a drag on the economy since the crisis years, is consolidating” and “once finalised, the sale of the second largest bank, Cyprus Co-operative Bank, is expected to reduce uncertainties surrounding the macroeconomic outlook.”
Overall, real GDP growth is expected to reach 3.6% in 2018 and 3.3% in 2019, unchanged since the spring.
Inflationary pressures remain weak. HICP inflation dropped during the first four months of the year and turned positive only in May.
The decrease in prices was rather broad-based, reflecting strong competition among retailers in several sectors and subdued wage dynamics. HICP inflation is expected to be positive for the year as a whole due to increasing services and energy prices and it is expected to pick up further in 2019, mainly as a result of higher oil prices and the gradual build-up of domestic price pressures amid rapid economic recovery.