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Cyprus Business Forecast Report Q4 2008Published by: Business Monitor International Published: Jul. 28, 2008 - 42 Pages Table of Contents
AbstractBMI View - Slower Growth This YearThe long-running ethnic division of the country is the most obvious and severe risk to stability forCyprus. It will remain so over the forecast period. However, an agreement between the ethnic-Greek and ethnic- urkish Cypriot leaders to start direct peace talks will keep the momentum goingin the search for a resolution. Importantly, President Demetris Christofias and Mehmet Ali Talat(the leader of the ethnic Turkish northern region) agreed ‘in principle’ that Cyprus would be a singlesovereign state, rather than a confederation of ethnic-Greek and ethnic-Turkish enclaves. Whilewe are encouraged by the latest development, we believe it is too early for it to have any impacton our political risk ratings. Indeed, there have been several ‘false starts’ before, and it is unwiseto get carried away with this latest agreement of principles. We have updated our political risk ratings for Cyprus, in line with our revised proprietary systemfor measuring political stability. Cyprus’ short-term political rating has fallen to 77. (from 8 . ),which we believe better reflects the current climate. The two main areas weighing on the country’sscore are the upswing in inflation and the political divide on the island. The first is likely to generateincreased public unrest and social instability, as consumers suffer reduced purchasing power.The second imposes external constraints on policy formation, and underlying tensions act as adeterrent for investment. GDP growth is expected to slow this year, as domestic demand gradually moderates amid higherinflation and a tighter monetary policy response from the European Central Bank. We forecastreal economic growth at 3.9% this year and 3.5% in 2009. It is difficult to find any significant upsiderisks to our outlook given current conditions. The Cypriot government itself projects growth for 008between . - .7%, according to Stavrakis, who cites ‘rising oil and food prices’ and ‘competitiveness’as his key concerns. We also see inflation as the main threat to economic stability, thoughconsider the gaping trade deficit another point of concern. Cyprus’ business environment has been given a boost by accession into the eurozone this year,due to the removal of many transaction costs. However, investment activity will continue to beweighed down by the island’s political problems, which are a major deterrent for investors. Inaddition, the traditionally important tourism sector is suffering from a decline in competitivenessrelative to other popular destinations. However, the banking sector is developing rapidly, offeringeasy access to credit for businesses. Get Full Details About This Report >> |
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