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Cyprus economy has yet to hit bottom say economists

THE RECESSION in Cyprus’ economy in 2012 will be deeper than expected, according to economists from the Economic Research Centre of the University of Cyprus.

The economists believe that following a slight increase of 0.5% in 2011, the Cyprus economy will shrink by 1.5% – 2% in 2012.

They noted that challenges are big and uncertainty is significant.

The council of experts is composed of M. Clerides, P. Pasiardis, Chr. Pissarides, M. Sarris and L. Christofides.

The forecast does not include the VAT increase from 15% to 17%, which may add at least half percentage point to inflation in 2012.

According to the survey, the current condition of the global economy and the uncertain future of the euro area have increased dramatically the risks for the Cyprus economy.

The necessary fiscal adjustment and measures decided by government and Parliament, admittedly belatedly, have changed the data for 2012. On the one hand, they have improved the fiscal condition of the economy, but on the other hand, they deteriorate the economic condition of households in the short term, pushing their available income down.

As for the external environment, it has worsened and will possibly affect growth prospects in 2012.

The economists believe that the negative risks are greater than the positive and that the economy will be largely affected in 2012.

Specifically, the risks in 2012 are:

  • The critical condition in Greece and the uncertainty in psychology and the attraction of investments. This affects negatively the ratings of the Republic and the banks and puts more pressures on the economy. A possible deterioration could largely affect the economy of Cyprus. The negative climate affects international business activities, a significant sector of the island’s economy.
  • The slowdown and/or decline in exports as a result of the deterioration in the external environment, especially in the EU and the eurozone.
  • The high borrowing level of households and businesses along with the anticipated restriction of credit growth may affect negatively private consumption and investments.
  • The reduction in disposable income due to various measures that have been implemented may affect negatively private consumption in the short term, which can be moderated with the improvement of the climate and the increase in employment, given that the government remains committed to the structural reforms announced, including those aiming at the increase in productivity and the permanent reduction of state expenditure.

Although the exact quarter-turning point of the economy cannot be assessed easily due to huge uncertainty in relation to the implementation of the measures in Cyprus and the developments abroad, according to the econometric analysis, GDP is expected to drop in the first and second quarter of 2012.

Specifically, the GDP is expected to decline 2½% – 3% in the first and second quarter of 2012 and 1% – 1½% in next quarters.

The incorporation of the aforementioned risks in the analysis with the use of variables containing information about expectations of consumers, businesses and investors, means that the chances of error are expected mostly positive, i.e. above the central scenario, although chances of error down are still significant.

Policy to be followed is crucial

As for the policy that must be followed, it is noted that the economy faces significant challenges in both the internal and external environment. They expect a slowdown in growth and a possible increase in unemployment, which could be moderated if the government remains committed to promises for structural reforms for an increase I productivity and permanent reduction of the state expenditure.

The permanent improvement of the climate, which can be achieved by demonstrating commitment and determination to the need to promote financial objectives, will affect positively the confidence of international investors. Macroeconomic stability will give a clear message that Cyprus remains a major financial centre, with competitive advantages, including low taxation. This means a decline in spreads, widening the possibility of promoting growth measures.

The anticipated GDP decline may have significant impacts on the state’s fiscal condition. The possibility of a higher deficit must be taken seriously into account in order to cover the subsequent funding deficits that the state will face.

The structural reforms in the public sector and the labour market that must be promoted immediately are critical to the success of the fiscal consolidation effort and the recovery of the economy.

Reforms must re-examine the state’s role, increase productivity and promote private initiative.

Institutional changes should be promoted to enhance financial stability, which is the backbone of the economy, but also to strengthen the institutions in general (supervising and administrative). Those reforms can not only mitigate the adverse effects of fiscal austerity but also to enable the economy to withstand the short-term pressures and to improve the long-term economic outlook. The reforms should be promoted on a constant basis and not only in view of deadlines imposed by the EU.


  1. Yes, lets call a spade a spade. Caveat emptor is a civilized concept which should be supported by people telling their stories and experiences to others, so as to help them avoid the same mistakes. I feel it is my duty to let people know of the many rogues operating here, and that the prospect of legal redress is faint and expensive. As the tales are told, tourists and prospective property buyers are gradually getting wise to the pitfalls of investing in Cyprus. While this affects tourism revenues on the one hand, and all property related activity on the other, the economy is also on a natural long-term downtrend. Considering the similarities with Greece, i.e. not just attitudes to public finance, but overemployment in the public sector, it is hard to be optimistic for Cyprus future.

  2. Yianni.

    Firstly, there ARE crooks everywhere and nobody’s denying the fact. That’s not the point. Where corruption, fraud, etc. exist, those involved in such practices should be dealt with. In the Western world, this indeed tends to be the case. NOT so in Cyprus.

    Secondly, the old excuse that it’s the same elsewhere is the crude deflection tactic which is regularly trotted out in Cyprus. This is the sort of feeble excuse which one expects in a kindergarten. Therefore, if there’s corruption elsewhere, it’s alright if it exists in Cyprus. I think not.

    Thirdly, this has nothing to do with “Cypriot hating”. It’s a simple question of pointing out gross corruption and NOT accepting it. If this sort of behaviour which is blatantly going on in Cyprus occurred in Britain, France, Germany or wherever, I and others would react in exactly the same way and demand justice.

    If you and others continue to promote the view that all those who won’t accept institutionalized fraud and corruption are “Cypriot haters”, the island deserves to wallow and remain in the cesspit where it presently resides.

    I have Cypriot heritage and am appalled at what I see around me.

    Join those of us who don’t like what we see, who speak out and in our small way try to change things.

    Stand up, make a difference and don’t condone corruption and wrongdoing because it’ll take you down to the gutter too.

  3. @ Yianni.

    Regarding dishonesty; you’re stating the obvious that good & bad exists in every place & race. The difference is that here dishonesty is institutionalised.

    Regarding the Cypriot hating remarks; no these remarks aren’t hating, they are simply people expressing their experience and stating facts. Nobody likes being cheated, do you? If we were systematically cheated in the UK we would have a high percentage of success in getting the crooks into court. There’s no chance of that here and that’s a fact. Did you ever hear of a developer, lawyer or banker being charged with fraud over the title deed scandal?

    Regarding the usual bitter expats; maybe if you had experienced the same injustices the writers had, you would feel bitter too and would wish to share your frustration with the on-line community.

    You’re right in that many British have failed to succeed on the island…….in getting their rights to their title deeds, having paid in full for their property. And I believe a lot of your compatriots are in the same boat too. I bet they’re not laughing with you though.

  4. Thanks Yianni

    Can you please help future buyers by providing a list of Cypriot lawyers & developers they can trust?

  5. Yianni is right .

    In Britain if my Lawyer tells lies, swears at me, cheats me or insults me, we have a Law society which will investigate and if found guilty reimburse me for my loss and ban the Lawyer from practicing law in Britian again.

    In Britian if fraud and corruption is found in public office they will loose there job, pension, banned from holding public office and may face a fine plus a spell in jail.

    Developers who commit fraud and laugh in your face and tell you there is nothing you can do in Britain you can complain to the police who will investigate and they will take appropriate action.

    In Cyprus you are insulting me I will sue you. No I am not, you have lied over my title deeds, property tax, ask what do you want in your villa, well this is what you are going to get.

    Yes Yianni is right there is good and bad in every country.

  6. More Cypriot hating remarks here from the usual bitter expats who failed to succeed on the island. So British people are not dishonest? don’t make me laugh. There are good and bad in every race and every place.

  7. How can Cyprus Republic expect to be competitive without matching the wrenching adjustment to prices and salaries in both public and private sectors? There is much much more pain to come before the dust settles. Unemployment must rise significantly and salaries be aggressively cut. In such environment of uncertainty for one’s job security and income, people will spend less, especially on non-essential items like bars, restaurants, furniture shops, et al.

  8. Don’t think that they should receive any bail out or EU grants etc until they’ve collected the 1.3 Billion euros that is there for the taking in the title deed issue.

  9. @Martyn. Can’t help but think that Cyprus has probably got its application for a bailout already in the queue. After all, they have plenty of Greek cousins experienced in preparing the Business Case.

  10. Could the potential circa €1.3 billion revenue income from issuing the 130,000 outstanding Immovable Property Title Deeds help the state finances at all?

  11. A further example. A friend was quoted 900 euros for a car roof-rack by the local official dealer where he bought the car. A car accessories shop in UK quoted 125 pounds. He later got it on-line for 70 pounds. As a result, the local dealer not only lost the sale but all his future car servicing etc and gained a lot of bad mouthing around the district.

    And another. A local bar was selling a bottle of Othello red 18 months ago for 12 euro. By last autumn it was 13; now it is 15 euros. After the VAT hike on 1st March, no doubt the bar will take advantage and charge 18 or 19. I and others are no longer patronising this bar.

  12. The Cyprus government, and population, need stern and sobering reports such as this. Both have remained stubbornly in the denial stage for far too long, have responded not only ‘belatedly’ but also in my view very weakly, despite seeing close-hand the wreckage that has been heaped on Big Brother Greece, who, despite yesterday’s further Bail-out, will almost certainly suffer major further social unrest and economic deterioration before facing the inevitable exit from the Euro, massive devaluation and, still then, have to radically change its political and economic policies before any ‘new dawn’.

    Although not mentioned in the Report the massive additional impacts of last year’s outrageous mega-explosion are still being absorbed and the generous Russian low-interest loans will be by now have been fairly fully wasted in propping up the highly inefficient and stubbornly resilient Public sector without properly addressing the severe impacts of the global and particularly Eurozone recessions on a country massively dominated by tourism and construction and hamstrung by ineffective political and legal systems.

    One can only shudder to think how the country will perform in carrying out the up-coming EU presidency as things economically and politically continue to Slide.

  13. My neighbours went into a shop to buy triple ply roofing material and were quoted €19. When they saw a sample in the shop it was €13 a sheet, so they left without buying. Are the Brits getting cannier or are they just fed up of being ripped off?

    I buy on-line, even with white goods and get them imported and it works out cheaper. Car parts for my engine I got off E-bay from America after silly quotes from local garages.

  14. “Macroeconomic stability will give a clear message that Cyprus remains a major financial centre, with competitive advantages, including low taxation.”

    I don’t call 17% VAT on electricity bills ‘low taxation’!

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