19 July 2015 Why Citi is wrong about Cyprus’ Grexit exposure

On July 9, the Senior Editor of the financial and economic desk at Die Welt, Holger Schaepitz, tweeted a chart from Citi bank saying that “highly exposed” Cyprus was most exposed to Grexit. The chart showed exports of goods and services from Cyprus amounting to a scary-looking 5.9% of GDP in 2013. I have not been able to locate the original report but Schaepitz is pretty reliable, so one can assume that the “most exposed” assessment came from Citi.  But there are a few things wrong with this judgement.

First, the figures are plain wrong. Data from the Cyprus Statistical Service Cystat show that exports of goods reached €268 million in 2013 while data from the Ministry of Commerce, Industry and Tourism (MCIT) show that exports of services reached €274m in the same year.

Together that amounts to €542m. In 2013 GDP was €18.1 billion. So that makes exports of goods and services to Greece 3% of GDP—almost half the exposure cited by Citi.

It is still higher than the other countries cited (Malta was next at 1% of GDP). However, there are some other reasons not to fret too much.

More than 40% of services exports are shipping

The breakdown of statistics from MCIT shows that, of the €274m in exports of services to Greece, just over €119m, or 44%, is transport – in other words, shipping. And if there is one sector in Greece that is least exposed to Grexit it is the international shipping sector.  Sure, there are rumours that shipping companies will get out of Greece if tax rates rise. But we know that the first country they are looking to relocate to is Cyprus.

If one assumes that only half of the transport exports will be affected by Grexit, you might be looking at exposure closer to say 2.5% of GDP.

Another reason for not being too worried is that exports of both goods and services to Greece have already been declining rapidly in recent years. From a peak of €992m in 2009, they had collapsed to €542m by 2013 and probably less than €500m by 2014.

If Greece had such a big impact, you would expect to see this turn up in the national accounts (the breakdown of GDP). But it is difficult to spot any correlation. While the Greece market expanded in nominal terms by 3.5% in 2009, overall exports of goods and services fell in real terms by 7.3% that year.

And while nominal exports to Greece kept shrinking from 2008, Cyprus recorded real growth in exports of goods and services every year apart from the crisis one of 2013.

Exports of goods are small

Another statistic you hear quoted from those who do not really know Cyprus is that “Greece is Cyprus’ biggest export market”. This is also plain false. It is a by-product of the fact that it is easier to find data on exports of goods than exports of services.

Yes, Greece is Cyprus’ largest partner for trade in goods. But exports of goods in 2013 reached €1.6bn, whereas exports of services amounted to €7.7bn – nearly five times as much.

Cyprus’ biggest export market is in fact non-eurozone UK, with goods and services exports of €1.6bn in 2013, about three times more than the €542m sent to Greece.

This is not to say that there would be no impact of Grexit on Cyprus. But before you believe the person declaring catastrophe, check if they have been studying the Cyprus economy at close quarters for nearly 15 years.

So I’ll sign off with a cheeky suggestion that if you really need to know about Cyprus, you need to visit my website.