Cyprus Central Bank: Economy to grow with a 3% rate

The Cypriot economy will register a 3% growth rate in the next three years, Cyprus Central Bank said in its December 2016 economic bulletin.

The CBC said the Cypriot GDP will grow by 2.8% in 2016 and 2017 whereas output will accelerate to 3.1% and 3.0% in 2018 and 2019, mainly underpinned by tourism, private consumption increase, exports and the observed increase in new loan contracts.

“Given the positive momentum, the economy will register further recovery in the years 2017, 2018 and 2019 in the order of 2.8%, 3.1% and 3.0 respectively,” the CBC said.

The CBC noted that outlook risk are balanced. Downside risks are associated with a possible deterioration in external demand for services due to the worsened economic situation in the UK due to brexit, a possible deterioration in domestic credit conditions and a slower progress in the reduction of non-performing loans.

It adds the GDP growth rate may be affected positively if growth in new loans accelerates further assisting further recovery in private investments.
According to the CBC, “the improvement in the economic situation of the country and its banking sector is reflected in the more gradual upgrades by rating agencies and the sizeable reduction in the reliance on ECB emergency liquidity funding.”

On the banking system, the CBC notes the sector maintains the recovery course marked by continued deleveraging, progress in new loans, increase in deposits inflows.

“Depositor confidence both foreign and domestic to the Cypriot banking system has been restored to a significant extent with domestic private sector deposits registering positive annual change,” the CBC added.

The CBC warns however that despite positive developments, the banking sector continue to face with the particularly high level of non-performing loans, although significant progress has been achieved.

“With reforms in the legal framework acting as an incentive both to lenders and borrowers to accelerate viable restructurings, the first positive signs are already visible with the latest figures showing a continued reduction to the NPLs since February 2015,” the CBC said.
According to CBC, the stock of NPLs have been reduced by €2.8 billion since December 2014.

“A successful and comprehensive tackling of this problem is expected to restore investor confidence and to reduce the further deterioration in the banks` profitability and capital with positive effects both on the financial system and the economy in general.” the CBC noted.