The following is a shortened version of executive summary in the monthly, in-depth Sapienta Country Analysis Cyprus. For more about Country Analysis Cyprus visit here. For subscription options, visit the subscription page
Political analysis and outlook: We are holding the prospects of a settlement of the Cyprus problem at 30%. Poor EU-Turkey relations, combined with the weak outlook for progress in the talks, imply growing risks for political and economic stability.
Structural reforms and natural gas: Contracts for the third gas licensing round are due to be signed in early April amid plans by Turkey for exploration in the Mediterranean. Discussions continue on the new healthcare system and appropriate contribution rates.
Fiscal performance and forecast: Fiscal performance remained strong in the early part of 2017 and the government has revised up its primary surplus in 2016 to 3% of GDP. Future performance will be influence by who wins the February 2018 presidential election.
Banking sector: We believe it could be 2020 before the NPL ratio at BOCH falls below 10%. For the banking system as a whole, NPLs are declining but bad loans among small and medium-sized enterprises (SMEs) have been rising.
Macroeconomic trends and forecast: The recovery continues to be largely broadbased apart from financial services, which are still in decline. With signs of another strong tourism season coming, we forecast real GDP growth of 2.7% in 2017.