Insider Economy UCy: Cyprus GDP to suffer “severe contraction” in 2020

UCy: Cyprus GDP to suffer “severe contraction” in 2020

The University of Cyprus’ Economics Research Centre has projected that the country’s GDP is set to drop by 6.9% in 2020 under a baseline scenario and by 13.1% under an adverse scenario.

In its economic outlook of May 2020 the University of Cyprus’ Economics Research Centre notes that the Cypriot economy “is projected to suffer a severe contraction in 2020 as a result of the COVID-19 pandemic.”

Real GDP is projected to drop by 6.9% in 2020, under the baseline scenario, it adds.

The projection incorporates the direct impact of containment measures enforced in Cyprus, thereby reducing the production capacity in sectors of economic activity; the impact of the COVID-19 pandemic relating to reduced capacity utilization due to measures/restrictions, which will remain in place after the relaxation of the initial containment measures and the impact of reduced external demand, particularly demand for tourist services.

“Due to the high uncertainty surrounding the outlook, two alternative scenarios are considered, a baseline and an adverse one,” the ERC says.

The scenarios, it explains, differ with respect the adjustment period experienced in each sector, following the complete lifting of containment measures in the particular sector and the evolution of external demand.

During the adjustment period, “sectors are assumed to operate below their normal capacity utilisation levels due to supply and demand constraints.”

The baseline scenario assumes an adjustment period of two months and a reduction in external demand for tourist services in Cyprus from April to August, translating into a decrease of 40% in annual tourist arrivals.

At the same time, the sector of retail trade, transportation, accommodation and food service activities and the sector of arts, entertainment, recreation and other service activities are associated with the largest output losses, amounting to around 20% of their gross value added.

Significant output losses are also estimated for construction, manufacturing, as well as administrative and support service activities, the ECR adds.

“In the adverse scenario, which assumes a longer adjustment period and a sharp reduction in external demand, the contraction in real GDP could be as severe as 13.1%,” it says.

(CNA)

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