Filenews 4 May 2021 - by Theano Thiopoulou
Economic recovery of 3.6% of GDP this year, 3.8% in 2022, 3.2% in 2023 and 2.8% in 2024 when tourism reaches 2019 levels, predicts the stability and growth programme of the economy 2021-2024 sent last week by the Finance Ministry to Brussels.
According to the elements of the programme presented by "F", growth in 2021 continues to be supported by government spending and will be supported by the normalisation of private spending and investment, with a view to the implementation of a significant number of projects in the fields of tourism, energy, transport, education and include, inter alia, the construction of marinas, a casino resort and infrastructure development of the University of Cyprus.
Fear of mutation
The programme notes that the forecast for growth in 2021 has been revised downwards since autumn, due to a slower-than-expected recovery in the tourism sector. Indeed, tourist arrivals in numbers for 2021 are expected to double compared to 2020 levels but remain significantly below the 2019 record highs set by the UK, Russia, Germany and other European markets. Tourist arrivals are expected to gradually increase to 2019 levels by 2024. The ministry says that just over a year after the start of the COVID-19 pandemic, forecasts for the medium term remain surrounded by uncertainty, mainly depending on the evolution of the pandemic and the development of the vaccination programme. Moreover, a key determinant of growth is the tourism sector and how quickly it will recover. The fact that vaccines have indeed been developed by the scientific community for the virus is a key step towards regulating the pandemic under control. However, virus mutations threaten the effectiveness of vaccines, which is an important factor in restoring confidence.
In Cyprus, the vaccination programme, referred to in the stability programme, is being carried out at a relatively appropriate speed, taking into account the restrictions, and the Finance Ministry hopes that the health risks surrounding vaccines will not derail the vaccination targets set by the Ministry of Health. Pressure on the health system is still high and Cyprus, like a number of other European countries, is in the midst of restrictive measures that are considered serious enough for a significant part of economic activity. Positive courses are noted from countries that have started to see significant improvement after vaccinating a high proportion of their population (60% or more of the adult population have done so for at least the first dose of the vaccine) and growth prospects in 2021 remain positive.
Gradual improvement
In the medium term 2022-2024, the outlook for the economy is expected to be strong and the macroeconomic environment is expected to continue to improve and keep Cyprus' economy healthy with investment and domestic demand being the main growth levers. Spending will continue to make a positive contribution to growth and will remain strong but slowing compared to 2021, due to improved employment developments and better access to finance. From 2022 onwards, external demand will become more important as tourism gradually recovers.
Risks to the economic outlook
The risks associated with forecasts as recorded in the stability programme are uncertainty about the duration of the crisis, making it difficult to predict the possible effects on the productive factors of the economy over the next two years. This will largely shape the kind of recovery we will see. As the stability programme is drawn up daily, infection rates are still relatively high and the capacity of hospitals is constantly being questioned. At the same time, the vaccination programme is progressing, but there are problems related to the safety of vaccines. Performance against mutations may delay effective virus restriction. Further periods with the imposition of stricter restrictive measures are not yet out of the picture.
The programme states that the development of external demand will also depend on developments in our main trading partner countries. The coming months will be crucial for shaping future economic results, particularly in relation to the tourism sector. However, given the response of the scientific community to providing all possible means of controlling the pandemic, there are positive signs from countries that have achieved high vaccination rates from policies implemented using all available national tools, amid the collective response at European level, notably through NextGenerationEU.
Banking sector
Developments in the banking sector continue to be seen as a source of reduced risk mainly due to the rate of non-performing loans (NPL). Moreover, as the epidemic effects continue to develop, banks face increasing risks in terms of quality, profitability and capital. Important steps to effectively reduce the level of NPL are constantly being taken, while the banking system is supported by a resilient capital position and liquidity while maintaining significant medium-level disadvantages at this point.
