The Cyprus economy in 2008
The Cypriot economy has continued to grow at a satisfactory pace in the first half of 2008, but is expected to slow somewhat in the second half of 2008 and, probably slow down even more in 2009. Based on revised estimates of the Statistic Service, GDP in constant prices showed an increase of 3.9% in the second quarter of 2008 compared to the same period last year. The decrease in growth compared to the first quarter (4.1%), is due mainly to the construction and real estate sectors. However, increases were noted in services and banks.
Inflation, based on the Harmonized Index of Consumer Prices (HICP), followed an upward trend since the second half of 2007. In the month of July 2008, inflation stood at 5.3% compared with July 2007. In August 2008, inflation declined slightly, to 5.1% over the same month last year. For the whole of 2007, inflation in Cyprus reached 2.2%. For the period January - August 2008 compared with the corresponding period last year, inflation stood at 4.7%.
The unemployment rate continued to decline during the second half of 2007. For all of 2007, the unemployment rate fell to 3.9%, compared to 4.5% in 2006 despite a continuing increase in numbers of foreign workers. For the 1st quarter of 2008 the unemployment rate was 4.6%, marginally lower than that in Q1 of 2007, 4.8%. The increase in unemployment is attributed to seasonal factors, particularly the reduced economic activity in the sector of hotels and restaurants. The number of registered unemployed is also declining in 2007, confirming the improved labor market situation. In addition, the employment rate remained at high levels in 2007 and rose to 71%. During the 1st quarter of 2008 reached 70.2% while the 1st quarter of 2007 was at 69.8%. The unemployment rate for young people 15-24 years increased slightly and reached 10.2% in 2007 compared to 10% in the corresponding period of 2006. A small increase in youth unemployment observed during the 1st quarter of 2008 when the unemployment rate reached 11.2% compared to 10.9% in Q1 2007. A reduction was observed in unemployment for women but, was limited to 5% in Q1 2008 compared with 5.7% in the corresponding quarter of 2007. A small reduction has long-term unemployment from 0.9% of the workforce in 2006 to 0.7% in 2007. This percentage has remained stable at 0.7% in Q1 2008.
The rate of change of earnings remained moderate in the second half of 2007. The average growth rate of nominal earnings rose to 3% in 2007 compared to 4.9% in 2006, which is higher than the rate of change in productivity (1.7%). Curbing the growth of earnings, possibly, is due to the trend of employment of foreign manpower in many sectors of the economy. Based on the evidence so far, wage increases are expected to accelerate in 2008 due to strengthening of inflation. The first quarter of 2008 the rate of change of earnings is estimated to reach 4.3%. In the context of social dialogue for wage increases contracts in the banking and construction industry have already renewed. These two industries employ around 30.000 people and are regarded as a barometer for the further development of wage increases over the years 2008-2009. In the banking industry wage increases were set to 2% for 2008 and 2% for 2009 while in the construction industry to 2.25% in 2008 and 2.75% in 2009. For 2008 it must be taken under consideration that the public and broader public sector wage increases were 2% and in 2009 to 1.5%. If the Automatic Indexing Adjustment (AIA) is added to the above then the overall progress of each sector is expected to raise the rate of increase in nominal wages for 2008 to 2009.
* Economic Review Bulletin - November 2008 (Treasury)
* Projections for Employment 2008 - 2018 (Survey of HRDA)
Prospects for the Cyprus economy in 2009
The Cypriot economy is expected to slow in the second half of 2008. At the same time, uncertainty about the state of the economy in 2009 and 2010 has increased. The growth rate of the Cyprus economy is expected to decrease in the next two years due to the international crisis in the global economy, which in September 2008 has increased, before the economy regains its momentum in 2011.
The Euro zone economy is expected to grow with significantly lower rates because of the general economic situation of the global economy. The UK seems to be facing an extended downturn that particularly affected if the labor market, adversely affecting the economy of Cyprus (tourism, investment property) and in 2009. On the supply side, the construction industry is expected to slow down while the demand side, private consumption, investment and exports of services are expected to show restraint in 2009.
The 2009 budget is based on the main case (central assumption) that the rate of change of GDP in 2009 will be limited to 3.7%, compared with 3.9% estimated for 2008.
In 2009 the inflation HICP is estimated to be between 2.75% - 3%, assuming that oil prices will range on average to $ 126 per barrel. Note that the instability is the price of oil to international markets creates uncertainty as to the final formation level of inflation because of the high dependency ratio in Cyprus from the action.
Unemployment is expected to be maintained at similar levels compared to 2007, around 4% of the workforce.
Review of the Cyprus economy in 2007
2007 was a year of great importance for the course of the Cyprus economy as the country was in preparation for joining the Euro zone, where it entered from January 1, 2008.
The Cypriot economy has continued its growth path in 2007, not significantly affected by the adverse international economic developments that prevailed in the second, especially, half of the year mainly because of the turmoil in international financial and capital markets and high oil prices.
In particular, the growth rate of Gross Domestic Product (GDP) for the whole of 2007 stood at 4.4%, with a clear increase in the level of 4.0% for 2006. In absolute terms and at current market prices, GDP amounted to €15,490.2 million, to € 14,393.6 million in 2006. The dynamic development of the Cypriot economy is reflected, as is natural, in an increasing in per capita GDP, which rose in 2007 by 5.7% and reached 19.077 €. The achievement of very satisfactory growth rates of the Cyprus economy is due largely to the contribution of the services sector (financial services, land development, rental, other business including wholesale and retail). The road leading up to the euro adoption, increasing domestic consumption, economic growth in the EU and the increase in fixed investment were also essential favorable developments which influenced positively the economic growth for 2007.
The harmonized inflation rate for 2007 move at the same levels as the Euro zone (2.1%) remaining almost constant for four consecutive years. The Consumer Price Index for January - December 2007 rose by 2.5%, just as for the whole of 2006. Note that in 2007 there were significant increases in fuel prices (10.8%) and health services (6.2%), food and non-alcoholic beverages (5.6%), education (4.9 %) and restaurants and hotels (4.2%).
On the labor market, the average number of registered unemployed for the whole of 2007 amounted to 12,017 persons, compared with 12,824 unemployed in 2006, a 6.3% decrease. The unemployment rate at the end of 2007 stood at 3.9% from 4.5% at the end of 2006.
The financial balance of the State stood at a surplus for 2007 and rose to 3.3% of the GDP (from a deficit of -1.2% at the end of 2006). At the same time, public debt stood at 59.8% of the GDP at the end of 2007. Falling below the barrier of 60% was an important goal/commitment to joining the Euro Zone (2006: 64.8% of GDP).
Despite a slight rise in exports (2.7% last year) a significant increase in imports (15.2%) contributed to significant enlargement (at 19.7%) of the trade deficit for the Cyprus economy, which reached € 5270.7 million. Total imports amounted to € 6.353,4 million and showed an increase of 15.2% compared to 2006. Total exports displayed a slight decrease (2.7% versus 2006) and amounted to € 1.082,6 million, the Cyprus foreign trade is directed towards the countries of the EU. Where Greece emerges as the main trading partner of Cyprus.
Οδός Ανδροκλέους 3Α, 1060, Λευκωσία, Κύπρος,
