02/03/2017 13:54
Hellenic Bank assesses that Cyprus' macroeconomic outlook is positive and is accompanied by a significant increase in real gross domestic product in 2016, the reduction in unemployment and further improvement of key domestic indicators since the beginning of the year.
The economy is expected to grow by 2,8% in 2017 and between 2,5% to 3,0% in 2018. The moderate pick-up in domestic demand is expected to be reflected into improved labor market conditions. Inflation is also expected to remain relatively low.
In its Economic Review, the Department of Economic Research, notes that the better than expected outcome in the economy, together with the gradual restructuring taking place in the banking sector, have created and maintained an environment of improved confidence which is reflected in the upgrades of the country’s and the largest domestic banks’ credit rating by international rating agencies. As a result, the Republic of Cyprus successfully tapped international markets three times during 2016, while the yields declined to historically low levels allowing to refinance the national debt at more favorable rates and with extended maturities.
Τhe Economics Research Department notes that the positive macroeconomic performance reflects the resilience and the flexibility of the Cypriot economy as well as the potential of the modern economic environment in Cyprus. As per the Department, the better that expected macroeconomic performance, does not justify complacency and does not signal a relaxation of efforts to further reform the economy. The introduction of significant structural reforms is the beginning of an increase in the efficiency, productivity and competitiveness of the economy. Important reforms which are still outstanding relate to the implementation of the privatization agenda along with the reforms within the Public Administration, local government and the health sector. The acceleration of structural reforms would contribute to the revitalization of productive investment. The cost of the reforms may have negative effects on the Cypriot economy’s short-term prospects, but it constitutes the only path to maintain Cyprus on sustainable growth.
In the Economic Review for the second half of 2016, the Economic Research Department highlights that the economy has been exhibiting significant positive growth since the beginning of 2015 which accelerated in 2016 with real GDP growing by an annual 2.8%. The course of the steady recovery path is reflected in the labor market. The gradual de-escalation of the unemployment rate in Cyprus is mainly due to the increased employment rate of the last year, indicating that the economic recession is being contained.
As highlighted, during 2016, the primary surplus of the country’s budget is stood at 2.8% of G.D.P, while the fiscal surplus at 0.1% of GDP, surpassing initial expectations. The Economics Research Department notes that, the better-than-expected fiscal figures should not be regarded as a permission to relax the efforts for the public sector’s reformation. One must continue and increase the efforts for the consolidation of the public sector without delay, in order to ensure the sustainability of the public debt, which in turn will help to help to restore the competitiveness of the Cypriot economy.
In the Economic Review, the Economic Research Department, notes that the stabilization of the financial system, one of the programme’s targets, has been achieved to a great extent.
Its size has been reduced to circa 370% of GDP in mid-2016. Systemic banks have been restructured and recapitalized while, the banking regulatory and supervisory framework has been significantly strengthened. While decisive steps were taken and swift progress has been achieved throughout the banking sector, the high share of NPEs still exists. The high share of non-performing exposures is impacting both on the banks’ balance sheets as well as on their ability to extend credit to the economy.
Banks are making progress in restructuring their nonperforming loan portfolios, as the latest available data indicate that loan restructurings are proceeding at a faster pace. As of October 2016, exposures with amounts past due for more than 90 days decreased to €18.5 billion from €23.2 billion as of January 2015 reflecting the improved economic conditions in Cyprus and the implementation of regulatory reforms.
The macroeconomic environment which will further support banks’ efforts to tackle the high level of NPEs. The modernization of the legislation on insolvency and foreclosure framework which is now in place will be an invaluable tool towards this direction. An important part of the loan restructuring process is the collaboration between credit institutions and borrowers in a way that benefits both parties. Specifically, the restructuring of loans must provide facilities that make the future loan obligations of borrowers viable, so that the potential losses incurred by the banks themselves will be minimized.
According to the economic review, while sentiment is improving, a number of challenges lie ahead in 2017.
Specifically, it is pointed out that, some degree of uncertainty remains, as the country still has certain issues to resolve, such as the high volume of non-performing exposures (NPEs), the high private indebtedness levels, the high unemployment and delays in the advancement of structural reforms.
From an exogenous perspective, in the Economic Review, the Economic Research Department stresses that the country’s economy may be negatively influenced due to weaker than expected growth in the Euro area and a slowdown in output growth in the UK and further depreciation of the pound against the Euro, as a result of increased uncertainty following the UK referendum.
Also, according to the Department, possible deterioration of the Russian economic outlook and the increased geopolitical tensions in the Middle East and Eastern Mediterranean, could trigger adverse spillovers to economic confidence, tourism and consequently to the aggregate economic activity. On the other hand, it is stated that, geopolitical tensions in neighboring counties render Cyprus as a safer tourist destination and could therefore counterbalance, to a significant extent, the potential reduction in tourist traffic from UK.
Additionally, developments over a potential reunification of Cyprus along with the exploitation of Cyprus’ natural resources are being closely monitored in order to assess the potential prospects that are being developed.
The economy is expected to grow by 2,8% in 2017 and between 2,5% to 3,0% in 2018. The moderate pick-up in domestic demand is expected to be reflected into improved labor market conditions. Inflation is also expected to remain relatively low.
In its Economic Review, the Department of Economic Research, notes that the better than expected outcome in the economy, together with the gradual restructuring taking place in the banking sector, have created and maintained an environment of improved confidence which is reflected in the upgrades of the country’s and the largest domestic banks’ credit rating by international rating agencies. As a result, the Republic of Cyprus successfully tapped international markets three times during 2016, while the yields declined to historically low levels allowing to refinance the national debt at more favorable rates and with extended maturities.
Τhe Economics Research Department notes that the positive macroeconomic performance reflects the resilience and the flexibility of the Cypriot economy as well as the potential of the modern economic environment in Cyprus. As per the Department, the better that expected macroeconomic performance, does not justify complacency and does not signal a relaxation of efforts to further reform the economy. The introduction of significant structural reforms is the beginning of an increase in the efficiency, productivity and competitiveness of the economy. Important reforms which are still outstanding relate to the implementation of the privatization agenda along with the reforms within the Public Administration, local government and the health sector. The acceleration of structural reforms would contribute to the revitalization of productive investment. The cost of the reforms may have negative effects on the Cypriot economy’s short-term prospects, but it constitutes the only path to maintain Cyprus on sustainable growth.
In the Economic Review for the second half of 2016, the Economic Research Department highlights that the economy has been exhibiting significant positive growth since the beginning of 2015 which accelerated in 2016 with real GDP growing by an annual 2.8%. The course of the steady recovery path is reflected in the labor market. The gradual de-escalation of the unemployment rate in Cyprus is mainly due to the increased employment rate of the last year, indicating that the economic recession is being contained.
As highlighted, during 2016, the primary surplus of the country’s budget is stood at 2.8% of G.D.P, while the fiscal surplus at 0.1% of GDP, surpassing initial expectations. The Economics Research Department notes that, the better-than-expected fiscal figures should not be regarded as a permission to relax the efforts for the public sector’s reformation. One must continue and increase the efforts for the consolidation of the public sector without delay, in order to ensure the sustainability of the public debt, which in turn will help to help to restore the competitiveness of the Cypriot economy.
In the Economic Review, the Economic Research Department, notes that the stabilization of the financial system, one of the programme’s targets, has been achieved to a great extent.
Its size has been reduced to circa 370% of GDP in mid-2016. Systemic banks have been restructured and recapitalized while, the banking regulatory and supervisory framework has been significantly strengthened. While decisive steps were taken and swift progress has been achieved throughout the banking sector, the high share of NPEs still exists. The high share of non-performing exposures is impacting both on the banks’ balance sheets as well as on their ability to extend credit to the economy.
Banks are making progress in restructuring their nonperforming loan portfolios, as the latest available data indicate that loan restructurings are proceeding at a faster pace. As of October 2016, exposures with amounts past due for more than 90 days decreased to €18.5 billion from €23.2 billion as of January 2015 reflecting the improved economic conditions in Cyprus and the implementation of regulatory reforms.
The macroeconomic environment which will further support banks’ efforts to tackle the high level of NPEs. The modernization of the legislation on insolvency and foreclosure framework which is now in place will be an invaluable tool towards this direction. An important part of the loan restructuring process is the collaboration between credit institutions and borrowers in a way that benefits both parties. Specifically, the restructuring of loans must provide facilities that make the future loan obligations of borrowers viable, so that the potential losses incurred by the banks themselves will be minimized.
According to the economic review, while sentiment is improving, a number of challenges lie ahead in 2017.
Specifically, it is pointed out that, some degree of uncertainty remains, as the country still has certain issues to resolve, such as the high volume of non-performing exposures (NPEs), the high private indebtedness levels, the high unemployment and delays in the advancement of structural reforms.
From an exogenous perspective, in the Economic Review, the Economic Research Department stresses that the country’s economy may be negatively influenced due to weaker than expected growth in the Euro area and a slowdown in output growth in the UK and further depreciation of the pound against the Euro, as a result of increased uncertainty following the UK referendum.
Also, according to the Department, possible deterioration of the Russian economic outlook and the increased geopolitical tensions in the Middle East and Eastern Mediterranean, could trigger adverse spillovers to economic confidence, tourism and consequently to the aggregate economic activity. On the other hand, it is stated that, geopolitical tensions in neighboring counties render Cyprus as a safer tourist destination and could therefore counterbalance, to a significant extent, the potential reduction in tourist traffic from UK.
Additionally, developments over a potential reunification of Cyprus along with the exploitation of Cyprus’ natural resources are being closely monitored in order to assess the potential prospects that are being developed.
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