The Central Bank of Cyprus (CBC) sees some downside risks for the Cypriot economy over the next two years that may lead to slower GDP growth despite the robust economic activity.
Non – performing loans (NPLs) which are overdue for more than five years as well as various geopolitical developments such as Brexit, US-China trade war, pose potential threats for the Cyprus economy during 2020-2022, according to CBC economic bulletin.
It said economic growth for 2019 is projected to slow down to 3% and will be a bit lower for the years of 2020-22.
As regards developments in the banking sector, CBC’s forecast that banks will continue their fiscal consolidation due to NPLs, especially those overdue for more than five years. This percentage amounts to 46% compared to 17% in Europe.
CBC also underlines that the economy is generally on a good track, however, there are dangers due to macroeconomic imbalances and distortions of the past.
It says certain reforms in the economy and the efforts for a sound banking system are still underway while GDP recorded an increase of 3.1% for the first nine months of 2019.
“Although productivity remains low, many sectors record growth, particularly in the construction sector.”
Positive GDP growth had a positive impact on the labour market, while private consumption is expected to slow down due to the expected acceleration in loan repayments and the introduction of additional contributions to the National Health System.
The projected slowdown in investments is attributed to the gradual completion of investment projects (renewable energy infrastructure, marinas and the casino resort), while inflation is expected to move slightly higher in 2020 compared to 2019.