Cyprus stands to lose 1.5%-2.0% of GDP in 2022 if the airspace closures with Russia remain in place for the whole year, DRBS Morningstar rating agency said on Monday.
The impact could be much lower if the restrictions are lifted before the summer season or if Russian travelers are able to find alternative routes to Cyprus, the agency also said.
“The war in Ukraine will impact negatively growth this year, however, it should not derail Cyprus`s medium-term prospects,” it also said in a commentary.
“The introduction of sanctions and counter sanctions due to Russia`s invasion of Ukraine has increased the downside risks to otherwise strong medium term economic prospects for Cyprus,” it added.
Recalling that Russia has been Cyprus’ second tourist market, DBRS said that given the importance of Russian inbound tourism the flight bans could curtail around 20-25% of the overall tourist inflows to Cyprus in 2022.
Although DBRS Morningstar expects the Cypriot tourism industry to attract tourists from other source markets instead, including from the UK.
“Even if the sanctions affecting flight availability are short-lived, the inflows of Russian tourists to Cyprus, are expected to be severely impacted by the massive effect of the sanctions on the Russian currency and its economy,” the agency said.
Furthermore, DBRS Morningstar noted that, although Cyprus economy has proven more resilient than expected with the economy recovering faster than expected, “the European Commission`s growth forecast for Cyprus of 4.1% in 2022 published in February before the invasion now appears optimistic.”