01 Aug 2019 Cyprus macroeconomic highlights 2012-18

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2012: back into recession. The year in which Cyprus slipped back into its second recession since 1974 (the first was in 2009), as the financial crisis loomed. Real GDP shrank by 2.9% as tourism slowed, retail sales contracted and construction collapsed. The government’s budget deficit was running at an alarming 5.6% of GDP and Laiki bank ran into severe liquidity problems as deposits fled.

2013: crisis. The year of the banking crisis, the unprecedented bail-in followed by the international bail-out, in which every key sector of the economy, with the exception of the communications and information sector, declined. However, the first signs of the Cyprus economy’s resilience were also evident: predictions that the economy would shrink by more than 10% were not realized. Nonetheless, real GDP declined by 5.8% in 2013—the worst performance since 1975—the unemployment rate soared to 15.9% and youth unemployment peaked at just under 41%.

2014: The first signs of stabilization. Tourism and manufacturing were the first sectors to start recovering from the crisis. Tourism arrivals rose by 1.5% in 2014, having declined in 2013 as international media attention at the height of the crisis probably deterred tourists. Manufacturing grew by 2.4%, thanks largely to an upturn in the manufacture of pharmaceuticals, and Bank of Cyprus raised €1bn in private-sector capital. Not including the troika-funded €1.5bn recapitalization of the co-operative bank, the general government budget was almost in balance, recording a deficit of 0.2% of GDP, and Cyprus returned to the capital market in June.

2015: The return to growth. Just two years after the crisis, Cyprus recorded real GDP growth of 2%, thanks to a strong year for tourism, a broader recovery for manufacturing including halloumi, positive growth in the legal and accounting professions, and a milder contraction in construction. The unemployment rate fell for the first time since 2007, but at 14.9%, was still high. Public finances continued to improve and the government issued its first 10-year bond since 2004.

2016: The peak of the recovery. A return of consumer confidence helped by falling unemployment, record tourism arrivals and a construction sector expanding at double-digit rates, thanks largely to the citizenship for investment scheme. Real GDP growth peaked at 4.8%, its fastest pace of growth since 2007, just before the global financial crisis.

2017: Growth continues at a fairly rapid pace. All sectors grew apart from financial services and agriculture. Construction growth peaked at 27.5% and tourism enjoyed another record year. NPLs started to drop consistently for the first time, albeit at a gradual pace. Real GDP grew by 4.5% and unemployment dropped to 11.1%.

2018: Legacy bank issues come to the fore. GDP finally reaches its pre-crisis levels in absolute terms and growth begins to slow, to 3.8%. EU regulations forced parliament to address weaknesses in framework for addressing non-performing loans, ultimately leading to the closure of the co-op and the absorption by the state of €7bn in bad loans, or around 40% of the total. The move pleased credit rating agencies and Cyprus was returned investment grade in the fourth quarter of the year

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