GDP in Cyprus

Cyprus - GDP

Growth at over three-year low on plunging exports

Economic growth clocked in at 3.2% in year-on-year terms in Q1 2019, slowing from the 3.8% expansion recorded in Q4 2018, due to a notable deterioration in the external sector. The result came in below the 3.4% growth reported in the preliminary release and marked the slowest pace of expansion in three-and-a-half years. In seasonally- and working day-adjusted quarter-on-quarter terms, the economy expanded 0.7% in the first quarter, which was lower than Q4 2018’s 0.9% increase.

A downturn in exports was the main culprit behind the economic slowdown. The contraction in exports sharpened significantly from 0.1% in the fourth quarter of 2018 to 9.0% in the first quarter on an annual basis, due to nosediving foreign sales of goods most likely on the back of weaker demand from the EU. At the same time, imports bounced back and increased 2.7% (Q1: -4.7% yoy), on the back of a strong investment-linked rebound in purchases of foreign goods.

In fact, fixed investment skyrocketed, surging 70.0% year-on-year in Q1 (Q4: -12.0% yoy), one more proof of the traditional huge volatility affecting this component of GDP in very small countries. On a less positive note, household spending growth fell to 3.1% from Q4’s 3.4%, against the backdrop of worsening consumer confidence and the different timing of Easter Holidays. Moreover, a softer expansion in public spending (Q1: +9.4% yoy; Q4: +13.3% yoy), also contributed to the deceleration.

Growth is expected to moderate this year, as debt repayments restrain consumer spending, although should remain solid nonetheless. Particularly, healthy wage and job gains should cushion the slowdown, while buoyant construction activity will fuel a strong rebound in fixed investment. Downside risks to the outlook include a disorderly Brexit, a banking system burdened by non-performing loans and large stocks of private and public debt.

FocusEconomics panelists expect GDP to increase 3.1% in 2019, which is unchanged from last month’s forecast, and 2.6% in 2020.