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Cyprus Business Forecast Report Q1 2010Published by: Business Monitor International Published: Oct. 30, 2009 - 50 Pages Table of Contents
AbstractThe Cypriot economy is officially in recession, after posting two consecutive quarters of negativegrowth H109. On an annual basis, real GDP growth also turned negative (-0.7 y-o-y) in Q209, afar cry from the 4% average growth rate of the last five years. We expect real GDP to contractfurther in the second half of 2009, though have raised our full-year target to -1.2%, from -1.8%.An economic recovery could begin by the first quarter of 2010, though we expect growth to remainsubdued over the medium-term forecast horizon, in line with the regional trend. We remain wary ofthe potential for a second dip during the economic recovery, as monetary policy is tightened andgovernments throughout the region phase out the current round of stimulus programmes. Reunification talks continue apace, but there may not be much more time left to reach a resolution. Negotiations between Greek Cypriot President Dimitris Christofias and his Turkish Cypriotcounterpart Mehmet Ali Talat opened over a year ago, and while both leaders have found commonground on certain principles, there has been very little tangible progress in the quest for a workablesolution to the island’s division. Though there is no official deadline, presidential elections in theethnic Turkish north in April 2010 could remove Talat from the equation, potentially derailing theentire process. Our core view is unchanged, with hopes for a settlement remaining slender giventhe polarised position of both sides and major political obstacles on the horizon. Cyprus has entered into a period of deflation for the first time in 23 years. However, on a monthlybasis, prices only fell sharply in July and have since been rising again. Base effects from 2008- when soaring oil prices and euro adoption pushed HICP above 5% - are largely responsiblefor the deepening deflation, and we expect this trend to reverse before the year is up. Indeed, weexpect year-end inflation to register 1.0% in 2009, rising to 2.1% by end-2010. Looking furtherahead, we expect inflation to remain persistently above the eurozone average, representing anongoing concern for competitiveness. Cyprus continues to hold a status as a regional financial hub, due to its strong rule of law, eurozonemembership and extremely low corporate tax rate (10%). However, investment activity in Cypruswill continue to be weighed down by the island’s political problems and economic imbalances,which are a major deterrent for investors. In addition, the traditionally important tourism sectoris suffering from a decline in competitiveness relative to other popular destinations, and will behit hard in 2009. The banking sector - which has been developing rapidly in recent years - hasweathered the financial storm so far, but will continue to come under strain from external risks,particular from neighbouring Greece. Get Full Details About This Report >> |
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