Cyprus: Economy contracts at steeper pace in Q4
GDP fell 4.5% year-on-year in the fourth quarter of last year, worsening from the 4.3% contraction recorded in the third quarter. All in all, the economy shrank 5.0% in 2020, contrasting 2019’s 3.1% expansion and logging the worst reading since 2013 during the Cypriot financial crisis.
Q4’s downturn was chiefly driven by a pronounced drop in consumer spending and exports: Household consumption fell 6.4% in annual terms in the fourth quarter, which contrasted Q3’s 5.2% expansion. Meanwhile, fixed investment bounced back in Q4, growing 21.5% and swinging from the 5.6% contraction recorded in the prior quarter. Moreover, public spending growth ticked up to 10.1% in Q4 from 10.0% in Q3.
On the external front, exports of goods and services tumbled 28.8%, below the 27.2% plunge tallied in the prior quarter. Conversely, imports of goods and services dropped at a slower rate of 5.3% in Q4 (Q3: -12.8% yoy).
On a working-day and seasonally-adjusted quarter-on-quarter basis, economic growth slowed notably to 1.4% in Q4 from 8.9% in Q3.
Looking ahead, the imposition of a second lockdown in January, followed by softer, albeit still-tight, restrictions in February, is likely weighing on the recovery in the first quarter of the new year. However, conditions are expected to improve—mostly in the second half of the year—in line with vaccination progress, which should bolster domestic activity and allow for the revival of the crucial tourism industry. In addition, incoming EU funds and the ECB’s loose monetary policy stance should further support the recovery.
Rory Fennessy, assistant economist at Oxford Economics noted:
“With Covid-19 cases reaching very high levels at end- December, the government imposed a national lockdown from the start of 2021, which will cause the economy to contract by about 0.5% in Q1. We now forecast that the economy will grow by 4.0% this year, down from 4.7% three months ago, and 5.6% in 2022 (up from 4.8%).”