By Stelios Orphanides
The European Commission said that it expects economic growth in Cyprus to moderate to 3.2 per cent this year and to 2.8 per cent in 2019 after reaching 3.8 per cent in 2017.
“The economy’s robust performance can be attributed to strong private consumption and solid export growth, as well as some support from public consumption,” the European Commission said in a statement on its website on Wednesday. Last year’s inflation rate of 0.7 per cent surprised on the downside.
“Private consumption benefitted from rapidly expanding employment across all sectors and rising compensation per employee,” the Brussels-based authority said.
The improved conditions on the labour market which led to a marked decline in the jobless data, including long-term unemployment, are expected to further lead to an improvement in wages and employment levels and so further support private consumption, it said.
Cyprus, traditionally accustomed to low unemployment rates, saw during the recent turbulent years its unemployment rate rise to double digit figures and peak at over 16 per cent in 2014. In December, the unemployment rate stood at 11.1 per cent which was the third-highest in the euro area.
“Exports of services were strong, especially in the second and third quarters of 2017, linked to the ongoing tourism boom in Cyprus,” the Commission said. “This coincided with a certain rebound in goods exports”.
Import growth on the other hand, was more moderate in the first three quarters of 2017 compared to the respective period of 2016 “when imports and investment were heavily influenced by one-offs related to ship purchases,” it added. “Both investment and imports are expected to have picked up in the last quarter of the year. After the surge in 2016, investment levelled off in 2017”.
The European Commission added that it expects an increase in investment this year mainly on an increase in construction for residential and hospitality industry projects and in 2019, together with a further increase in consumption, to lead to a stronger growth of imports.
“Export growth is set to slow given limited opportunities for further growth, especially in tourism where capacity constraints may become binding,” it said.
“After two years in negative territory, core inflation turned marginally positive in 2017 due to higher service prices linked to increasing wages,” the Commission said. “Inflation in 2018 is expected to climb to 1.2 per cent, mainly as a result of higher oil prices, and to 1.3 per cent in 2019, amid higher domestic price pressures stemming from wage dynamics”.
The euro area’s economy is expected to expand this year 2.3 per cent and in 2019 another 2 per cent after growing 2.4 per cent in 2017, the Commission said. The EU’s economy is forecast to growth 2.5 per cent and 2.1 per cent in 2018 and 2019 respectively.