By Stelios Orphanides
The Central Bank of Cyprus significantly revised its 2018 economic growth forecast upward to 4.1 per cent from a previous 3.4 citing strong exports and domestic demand.
In 2019, the economy is forecast to grow 3.9 per cent with the growth rate slowing down to 3.5 per cent the following year, the central bank said in its June 2018 economic bulletin.
“In 2018, private consumption is expected to increase 2.5 per cent after growing 4.2 per cent in 2017, reflecting the increase in disposable income resulting mainly from an increase in employment and to a lesser degree higher earnings,” the central bank said. Public consumption is forecast to increase 1.8 per cent in 2018 after growing 2.7 per cent the year before due to the increase in wages and the increase in employment in the public sector. The value of exports of goods and services is expected to increase 6.1 per cent this year after growing 3.4 per cent last year while imports are forecast to increase 5.5 per cent, almost half as much they increased last year.
In addition to positively impacting private consumption, the increase in wages is expected to positively affect savings of households, which during the crisis years resorted to their deposits to maintain the level of consumption, and also help repayment of non-performing loans, the central bank said.
Gross fixed capital formation is expected is expected to increase 9 per cent this year after growing a staggering 28 per cent in 2017 resulting from the completion of private sector projects and the purchase of transport equipment, mainly ships, by special purpose vehicles, the central bank said.
The unemployment rate is expected to average this year at 9.1 per cent, compared to 11 per cent last year, with employment increasing 3.5 per cent after growing 3.4 per cent in 2017, it said. In 2019, the unemployment rate is expected to fall to 7.4 per cent.
This year, nominal compensation per worker is expected to increase 1.9 per cent after growing 0.7 per cent last year mainly on pay rises in the public sector triggered by the re-introduction of wage indexation, compensating workers for the loss of purchasing power, and the introduction of annual pay rises, the central bank said.
“The afore-mentioned wage increases are on top of the annual incremental pay increases from 2017, after a wage and pension freeze period expired,” it said.
The harmonised inflation rate is expected to accelerate to 0.9 per cent this year from 0.7 per cent in 2017, before it further accelerates to 1.4 per cent next year, the central bank said.