Cyprus: Growth slows to near four-year low in Q2
September 6, 2019
Annual growth eased to 3.0% in the second quarter, according to detailed national accounts released on 6 September (Q1: +3.2% year-on-year). The print matched the preliminary estimate and marked the slowest pace of expansion since Q3 2015. In seasonally- and working day-adjusted quarter-on-quarter terms, the economy grew 0.8%, above Q1’s 0.6% increase.
The second-quarter slowdown reflected both waning domestic and external demand. Fixed investment cooled sharply (Q2: +22.4% yoy; Q1: +76.1% yoy), underpinning the loss of traction in domestic demand and underlining the significant volatility of this GDP component. On the other hand, private consumption gathered momentum amid the tightening job market and solid wage increases as of late (Q2: +4.6% yoy; Q1: +4.0% yoy), while government spending growth hit a near-decade high in Q2 (Q2: +13.4 yoy; Q1: +10.3% yoy).
On the external front, exports fell 2.9% on an annual basis in Q2, due to plunging overseas sales of goods and weighed on in part by a more subdued demand environment in the EU (Q1: +3.5% yoy). Similarly, imports declined 1.9% year-on-year, after jumping 15.9% in Q1.
Looking ahead, although growth is projected to ease this year, it should remain solid overall. Sturdy domestic demand, supported by sustained private consumption and a rebound in capital investment, should underpin the expansion. A slowing tourism industry, weaker Eurozone demand, high private and public debt levels, and a large stock of sour loans burdening the banking system all weigh on the outlook.
Author: Javier Colato, Economist