- Cyprus Property News Magazine - http://www.news.cyprus-property-buyers.com -

Property sector will act as a further drag

SEVEN economists recently gave their views on the prospects for the Cyprus economy in 2013 to the Financial Mirror. Ioannis Tirkides, Economic Research Manager at Marfin Popular Bank, had this to say about the island’s property sector.

Economic developments in recent months have been taking a turn for the worse. This is owing to the uncertainties surrounding the economic adjustment programme that will be required of Cyprus for financial assistance from the EU bailout mechanisms and the IMF.

A long delay in finalising the programme is causing considerable uncertainty and makes things worse. Liquidity constraints and continued deleveraging on the part of commercial banks are causing a credit crunch with consequences for the real economy.The economic adjustment programme revolves around three key themes: fiscal consolidation; bank recapitalisation and financial regulation; structural reform to boost competitiveness and support balanced growth. The corresponding measures will have a lasting contractionary effect and no matter how viable we may think the economy is in the long term, there will be considerable pressure in the short and medium terms.

It is now also realised that the property sector may be more of a problem than we initially thought. Banks, in the boom years, lent considerable amounts of money to property development and housing. Property prices, when judged against income levels and corresponding yields, are high and will necessarily have to adjust. This adjustment in a context of an economic adjustment programme will be faster and deeper than initially thought and will have a significant bearing for bank lending ability.

Even though developments both in Europe and in a global context are taking a turn for the better following decisions by the Federal Reserve and the European Central Bank to provide support and liquidity; the recession in the Cyprus economy that started in the second half of last year has a way to go still.

In this context we downgrade our outlook for 2012 and 2013. We expect real GDP to contract by 2.1% in 2012 and by 1.5% in 2013.