13 February 2015 The Cyprus recovery is sliding backwards


Economic recovery slid backwards in the fourth quarter of 2014 according to the flash GDP estimate produced by the Statistical Service Cystat on 13 February.

Real GDP fell compared with the previous quarter by a seasonally adjusted 0.7%.

This is a faster pace of contraction than in the third quarter, when the decline was 0.3%.

The slide is significant because it is the first time since the 2013 crash that the quarter-on-quarter growth rate has not improved relative to the previous quarter.

The main reason for the reversal is likely to be tourism.

Arrivals from Russia tumbled by 27.6% year on year in the fourth quarter as the 40% depreciation in the Russian rouble increased the cost of travel. This was largely responsible for the 5% drop in total tourism arrivals in that quarter.

The real GDP decline for the whole of 2014 has not yet been reported. But based on the Q4 figures it is likely to be 2.4%.

Nevertheless, this is still a significant improvement on the crisis year of 2013, when real GDP fell by 5.3% (revised from 5.4% inferring from the latest figures).

However, the latest statistics mean that official forecasts projecting growth this year are likely to prove even more out of date, as well as overly optimistic.

In January Sapienta Economics projected another real GDP decline of 0.7% in 2015. In our February report, we shall review the latest statistics and revisit this forecast. At first sight, it looks like we shall have to revise our forecast downwards.

For independent monthly analysis on the Cyprus macroeconomy, fiscal performance, banking sector, natural gas and political stability visit https://sapientaeconomics.com/country-analysis-cyprus/