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In early November 2016, the European Commission released its European Economic Forecast (EEF) for the period between 2016-2018 in an attempt to provide an outline of the anticipated economic performance of the European economy as a whole, as well as of member-states individually during the aforementioned period. According to the EEF’s overview for Cyprus, economic growth is ‘set to ease but should remain robust over the forecast horizon. The recovery has benefitted the labour market and unemployment has started to decrease, although it remains high. Inflation is forecast to return to moderate positive levels. The general government position is expected to remain close to balance, helping to reduce the public debt ratio.’
The decline in unemployment rate to 12.4% of the labour force, according to the report, can be explained by reference to both increasing employment and a declining labour force. Job creation is expected to continue reducing unemployment and thus putting upward pressure on wages and unit labour costs.
Real GDP growth is expected to reach 2.8% in 2016 and then to moderate gradually to 2.3% in 2018. The 2017-2018 growth forecast is driven by private consumption and investment, the latter benefitting from a stabilising housing market.
In respect of the tourism sector, the EEF identifies improved air connectivity, geopolitical tensions in competing markets and measures to extend the season as the main pillars upon which the strong performance of the tourism sector in Cyprus is currently premised. Growth in the tourism sector is forecast to continue, albeit less buoyantly.
Furthermore, consumption is likely to be boosted beyond current estimates on account of the lagged effects from declining energy prices and stronger labour incomes while foreign direct investment (FDI) is expected to outperform current forecasts.
According to recent data, Cyprus ranks 2nd (9.1%) only behind Ireland (16%) among EU member-states in respect of the increase in total investments for 2016, while the European Commission’s projections see Cyprus occupying top spot by 2018.
Public Debt is expected to decline to 100.6% of GDP in 2018. The debt path is slightly better than envisaged in the spring, mainly due to higher nominal GDP.’