Cyprus: Growth cools in Q4 2019
Annual growth came in at 3.2% in the fourth quarter of last year, according to detailed national accounts data released on 3 March. The print matched the preliminary estimate and was below the 3.5% expansion of the third quarter. In seasonally- and working-day-adjusted quarter-on-quarter terms, the economy grew 0.8%, above Q3’s 0.5% increase. For 2019 as a whole, GDP growth eased to a five-year low of 3.2%, down from 2018’s robust 4.1% upturn.
Waning domestic demand led the fourth-quarter slowdown. Household consumption expanded at the softest pace in four-and-a-half years in Q4, likely capped by rising unemployment and more downbeat consumer confidence (Q4: +2.2 year-on-year; Q3: +2.5% yoy). In addition, the highly volatile GDP component of fixed investment plunged 33.0% on an annual basis (Q3: +7.3% yoy) while public spending growth cooled to 3.4% from 27.9% in Q3, which had marked the strongest increase in over two decades.
Meanwhile, the external sector cushioned the overall slowdown. Exports of goods and services rose a solid 4.8% year-on-year in Q4, though more than halving from Q3’s 10.4% surge. In contrast, imports plunged 7.8% in annual terms, partly reflecting a more subdued demand environment domestically, after growing 7.9% in the prior quarter.
The economy is seen losing steam this year on softening domestic demand. That said, overall growth should remain solid, anchored by resilient private consumption on a tightening labor market and rising wages. Sour loans burdening the banking system; Brexit-related uncertainties; and a slowdown in tourism activity pose key risks to the outlook.