The Cyprus Statistical Service released figures on February 17, 2021 indicating that real GDP contracted by 5.1% in 2020.
However, without the details of the changes in the main components of real GDP, such as the fall in value added of the accommodation and food services sector, evidence for disputing the magnitude of the fall in real GDP in 2020 is limited. Not with standing, this official estimate of the rate of decline of real GDP can be contested on a number of grounds:
•Firstly, the estimated decline in real GDP in other countries that depend importantly on foreign tourist arrivals is much greater including falls of 11% in Spain, 10% in Greece, and 8.8% in Italy. In Cyprus tourist arrivals fell by over 84% in 2020, more than in the aforementioned countries, yet the estimated rate of decrease of real GDP for Cyprus was much less. More buoyant domestic economic activity in Cyprus than in Spain and Italy at least is most unlikely to account for the large differences in real GDP contractions as Cyprus experienced lockdowns just as severe as in these other countries. In this connection it is estimated that construction activity, which was adversely affected by the Cyprus passport scandal, fell by 9% in the first three quarters of 2020. And figures released on February 19 show industrial turnover decreasing by 7.9% in the first 11 months of 2020 with the electricity supply component falling by 18.0%;
•Secondly, as indicated above the estimate for real GDP in 2020 was produced before actual data for the full year was known for certain key sectors. It was estimated that real GDP fell by 4.5% in the fourth quarter of 2020 compared with the same quarter of 2019 partly on the basis of “making some imputations for the short-term indicators used”. For example, data on the key aggregate household consumption is based importantly on retail sales figures which were only available up to November meaning that depressed sales in the lockdown month of December were probably insufficiently taken into account. And in certain other sectors such as construction there is no value added data for the fourth quarter on which to make reliable estimates for the full year; and
•thirdly, one suspects that the Ministry of Finance all along has been trying to convey the image that they are managing and supporting the economy well during the Covid-19 crisis by presenting rosy statistics and optimistic forecasts to prove their case. On September 29, 2020 a forecast was made that real GDP would decline by 5.5% as an important base assumption for the 2021 Government budget estimates. And despite compelling evidence in the following months that the economy was being subjected to more Covid-19 induced disruptions and restrictions hampering production, the Ministry of Finance has clung stubbornly to its 5% plus decline figure for real GDP growth in 2020.
While the Government loses credibility with its massaging of statistics on recent developments and in making unrealistic economic forecasts, the bigger issue is that the Ministry of Finance is obsessed with the growth rate of GDP per se as the prime policy goal and measure of its policy success. This steadfast loyalty to the cult of GDP growth is delusional as the main aim of economic policy should be to achieve inclusive and equitable growth that combines increased prosperity with greater equality, creates opportunities for all, and distributes the benefits of increased prosperity fairly. Unfortunately, the Administration of President Anastasiades pursues policies or more accurately unsavory behavior that enables the political and business “elite” of Cyprus to mostly reap the gains of economic growth and wealth transfers, including from the transfer of the good assets of the Cooperative Central Bank to Hellenic Bank, thus increasing income and wealth inequality in the process.
*Economist, specialising in macroeconomic policy analysis and international financial relations.