23 DEC 2017 EXECUTIVE SUMMARY: SAPIENTA COUNTRY ANALYSIS CYPRUS

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Political analysis and outlook: Our working assumption is that the incumbent, Nicos Anastasiades, will win re-election in February. We do not expect negotiations to solve the Cyprus problem to resume before late 2018.

Structural reforms and natural gas: Turkey has responded to exploratory drilling with a notice that it plans a live-fire naval exercise in the same area. Opposition deputies made a number of changes to the budget for 2018 that will hamper structural reform including healthcare.

Fiscal performance and forecast: Budget revenue continues to accelerate and we expect a comfortable surplus in 2017 and 2018. The debt/GDP ratio should fall to 86% of GDP by 2022.

Banking sector: The performance of the Cyprus Cooperative Bank (CCB) in cutting bad loans has improved, while Hellenic Bank has made less progress than the other two big banks.

Macroeconomic trends and forecast: We have revised up our growth forecast for 2018 to 3%. owing to new employment data and the EU-UK Brexit deal in mid-December. There are signs of a construction bubble in Limassol and Paphos.

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