Cyprus: Economy contracts at record pace in Q2
GDP collapsed 11.9% year-on-year in the second quarter, contrasting the 0.9% growth in the first quarter and marking the worst reading on record, as the pandemic and related restriction measures took their toll on economic activity.
Looking at the domestic economy, household spending plummeted 7.3% on an annual basis in Q2, contrasting Q1’s 1.8% expansion and marking the sharpest contraction since the Cypriot banking crisis in 2013. Similarly, fixed investment nosedived 48.8% in Q2, swinging from the previous quarter’s 31.4% surge and marking the steepest drop since Q1 2018. Meanwhile, public spending growth remained stable at 16.7% in Q2 (Q1: +16.7% yoy).
Turning to the external sector, exports of goods and services contracted 16.6% in Q2, marking the worst result on record (Q1: -5.5% yoy). Similarly, imports of goods and services plummeted 18.5% in Q2, contrasting Q1’s 5.1% increase.
On a seasonally- and working-day-adjusted quarter-on-quarter basis, GDP fell at a steeper pace of 11.6% in Q2 (Q1: -2.1% s.a. qoq). Q2’s downturn was also the worst reading on record.
Commenting on the outlook ahead, analysts at Scope Ratings added:
“Cyprus is particularly vulnerable to periods of heightened global uncertainty given its externally dependent economic structure with service sectors linked to tourism, real estate, financial and business services being reliant either on foreign demand or foreign funding. The Covid-19 crisis, with high levels of uncertainty and restrictions in crossborder movement, will therefore weigh substantially on Cyprus’s growth outlook, only somewhat offset by the country’s robust growth momentum entering the crisis. For 2020, we forecast a contraction of around 9%, in line with the euro area aggregate (9.1% contraction) and Greece (7.8%) but slightly better than Italy (10%), Portugal (10%) and Spain (12.5%).”