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Economy in deep red

25/11/2011 07:19
The Cypriot businesses are getting ready for possibly the worst year since 1974 in view of the scarcity caused by the capital needs of the banks and the uncertainty from the European debt crisis and the austerity measures.

This year is expected to close marginally for the Cyprus economy with all key sectors shrinking except for tourism and foreign trade.

The economy already started to shrink after Mari and there are no indications for any reversal.

Constructions

The once thriving construction and property sector falls significantly compared to last year’s low level, without showing signs of recovery since the banks have restricted significantly the granting of loans to the sector.

The deeds of sale submitted to the Land Registry have so far dropped 18%, while the cement sales in the domestic market have shrunk 10.5%, reflecting the lower demand.

Similarly, the area of the building permits, which shows the future construction activity, slumped 27.1%.

In the first ten months of the year, the state revenues from the capital gains tax declined 15%.

Consumption

The messages from the construction sector reflect the first impacts from the cuts in salaries and benefits in the public sector, as well as the impacts from the increasing uncertainty in the labour market.

The turnover index in retail trade recorded a slight decrease in the first seven months of 2011, while the super markets talk about a drop in sales of up to 15% - partly due to the increased competition.

The car sector dives, with the car registrations falling 17.4%, despite the promotional efforts of the main importers.

A decline of 2.4% is observed in the trips of the residents of Cyprus abroad, since crisis changes the budgets for holidays and leisure.

The imports remained stagnant this year.

The increased taxes, however, have boosted the state revenues from consumption; the VAT revenues have recorded an increase of 6.7% in the first ten months of the year.

An increase of 11% is registered in the use of credit cards, which is largely linked to the expansion of services that can be paid with “plastic money” (e.g. taxes), instead of an increase in consumption.

Tourism and imports

The only sectors that maintained relatively high growth rates are the sectors of tourism and imports.

Tourism goes through one of the best seasons in the past decade, while imports grow sharply higher.

In January – October 2011, the tourist arrivals soared 10.6% while the tourist revenues jumped 14.4% (until September) compared to the corresponding period of 2010.

The imports in January – September 2011 grew by 26.3%.

Economy shrinks

The great improvement in tourism and foreign trade is not enough to reverse the negative course of the economy, which shrunk by 0.6% in the third quarter compared to the corresponding period of 2010.

The Finance Ministry expected that economy will grow marginally this year and 2012, while the foreign organizations such as IMF see a shrinkage of 1.1% in 2012.