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Cyprus Economy Update - October 2017

Cyprus Economy Update - October 2017

This alert covers updates regarding Cyprus’ GDP Growth, ratings upgrades of the Cypriot economy, the European Commission autumn economic forecast for Cyprus, public debt, tourism arrivals and revenue, property sales and building permits, Cyprus bonds, unemployment, loans and deposits, non-performing loans, government’s budget surplus, trade deficit, inflation, Price Index of Construction Materials, Industrial Output Prices Index and registration of motor vehicles.


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KPMG in Cyprus


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GDP Growth Rate

According to the Flash Estimate compiled by the Statistical Service, the GDP growth rate in real terms during the third quarter of 2017 is positive and is estimated at +3.8% over the corresponding quarter of 2016. Based on seasonally and working day adjusted data, GDP growth rate in real terms is estimated at +3.9%.

The increase of the GDP growth rate is mainly attributed to the sectors: "Hotels and Restaurants", "Retail and Wholesale Trade", "Construction", and "Manufacturing." Negative growth rate was recorded by the sector "Financial and Insurance Activities" (Source: CYSTAT).

European Commission Autumn Economic Forecast

The European Commission expects "growth surprises on the upside" concerning the economy of Cyprus, according to the title of the Cyprus chapter of the Autumn Economic Forecast. According to the Commission, "economic growth has exceeded expectations in recent quarters".

However, the Commission finds that "downside risks mainly pertain to the still very high share of non-performing loans, the macroeconomic prospects of the UK, one of the key trading partners of Cyprus and possible delays in construction of tourism-related projects".

At a glance, the EC expects unemployment rate to drop from 11% in 2017 to 10,0% in 2018 and 9,3% in 2019, while GDP growth will be 3,5% in 2017, 2,9% in 2018 and 2,7% in 2019. Inflation will be positive at 1,0% in 2017, 1,1% in 2018 and 1,4% in 2019 and general government surplus is expected for all three years at 1,1%, 1,4% an 1,9% respectively. Debt will decline from 103% in 2017 to 98,3% in 2018 and 93,9% in 2019 (Source:

Public debt

The Ministry of Finance`s Public Debt Management Office (PDMO) announced that it has repaid part of its debt to the Central Bank of Cyprus (CBC) in a move that will lower the public debt-to-GDP ratio below 100% for the first time since 2013. “This early repayment amounts to €614,9 mn plus €6,3 mn accrued interest and represents  a projected reduction of the public debt to GDP ratio of 3,2 percentage points,” the PDMO said in a press release.

The transaction is projected “to bring the Public Debt to GDP ratio further down to 98,4% of GDP at the end of 2017.” Furthermore, the PDMO said the projected cash reserves of the Government at year-end 2017 are estimated to fully cover the financing needs of 2018, in line with the Guidelines of the Medium-Term Public Debt Management Strategy. Following the transaction, the loan to the CBC which matures in 2032, declined to €510 million from €1.125 million in September 2017. After this transaction, Cyprus’ public debt declined to €18,42 billion (Source:



On the basis of the results of the Passengers Survey, arrivals of tourists reached 483.716 in September 2017 compared to 421.201 in September 2016, recording an increase of 14,8%. September 2017 had the highest volume of tourist arrivals ever recorded in Cyprus during the specific month.For the period of January – September 2017 arrivals of tourists totaled 3.001.603 compared to 2.617.218 in the corresponding period of 2016, recording an increase of 14,7% and outnumbering the total arrivals ever recorded in Cyprus during the first nine months of the year.Tourist arrivals from the United Kingdom increased by 10,8% in September 2017 compared to September 2016 while an increase of 6,2% was recorded for tourists from Russia. Increases were also recorded from other important tourist markets, such as Israel (77,5%), Sweden (15,1%) and Germany (65,5%). Contrary to that, a decrease of 21,5% in tourist arrivals from Ukraine was recorded.The United Kingdom and Russia constitute the main sources of tourism for Cyprus for September 2017, with proportions of 34,3% and 25,1% respectively, while arrivals from Israel comprise 6,5%, from Sweden 4,6% and from Germany 4,5% of total arrivals.For a percentage of 88,6% of tourists, the purpose of their trip in September 2017 was holidays, for 7,7% visit to friends and relatives and for 3,7% business. Men comprise 44,3% of tourists and women 55,7%, whilst most of the tourists belonged to the age group of 20-44 years.


On the basis of the results of the Passenger Survey, revenue from tourism reached €423,6 mn in August 2017 compared to €392,2 mn in the corresponding month of the previous year, recording an increase of 8,0%.For the period of January – August 2017 revenue from tourism is estimated at €1.845,7 mn compared to €1.625,6 mn in the corresponding period of 2016, recording an increase of 13,5%.The expenditure per person for August 2017 reached €809,01 compared to €855,14 in the corresponding month of the previous year, recording a decrease of 5,4%. The expenditure per person/per day for August 2017 compared to August 2016 also recorded a decrease of 3,6%. In August 2017 a decrease of 5,4% was recorded for the expenditure per person for tourists from the United Kingdom (from €885,83 in August 2016 to €837,97 in August 2017), 0,5% decrease from Russia (from €855,26 to €850,76 this year) and 1,7% increase from Israel (from €721,50 to €733,46 this year). The expenditure per person/per day for tourists from the United Kingdom recorded a decrease of 5,4% (from €76,36 in August 2016 to €72,24 in August 2017), the expenditure per person/per  day for tourists from Russia decreased by 5,5% (from €90,03 to €85,08) and for tourists from Israel also decreased by 3,3% (from €122,29 to €118,30) (Source: CYSTAT).

Property Sales

A significant increase has been recorded in property sales in 2017 as displayed by data released by the Land Registry. More specifically, in October 2017 property sales contracts submitted with the Land Registry amounted to 768 compared to 634 in October 2016, recording an increase of 21%. In September, property sales increased by 8%.

For the ten-month period of January- October 2017, the largest increase in property sales (27%) was documented in Limassol and Paphos. Specifically, sales contracts in Limassol amounted to 2.314 compared to 1.815 in the equivalent period of 2016, while in Paphos 1.574 contracts were submitted compared to 1.239 in the first ten months of 2016. In Ammochostos sales increased by 23% from 330 in 2016, reaching 407. An increase of 23% was recorded in Nicosia, while in Larnaca property sales decreased by 8% (from 1.093 to 1.008).

In total, for the first ten months of 2017, property sales contracts in Cyprus amounted to 6.291 compared to 5.278 in the equivalent period of 2016, representing an increase of 19%  (Source:

Building Permits

The Statistical Service announced that the number of building permits authorized by the municipal authorities and the district administration offices during August 2017 stood at 410. The total value of these permits reached €90,3 million and the total area of 85,0 thousand square metres. These building permits provide for the construction of 244 dwelling units.

During the period January – August 2017, 3.772 building permits were issued compared to 3.434 in the corresponding period of the previous year. The total value of these permits increased by 49,1% and the total area by 39,5%. Τhe number of dwelling units recorded an increase of 36,3%. Building permits constitute a leading indicator of future activity in the construction sector (Source: CYSTAT).

Budget surplus of the General Government

On the basis of the preliminary data on the General Government accounts for July-September 2017, which are compiled in accordance to EU concepts and definitions (ESA 2010), total revenue amounted €2.023,2 mn (11,8% increase as compared to the corresponding period of 2016), while total expenditure reached €1.656,5 mn (2,0% increase), resulting in a surplus of €366,7 mn as compared to a surplus of €185,8 mn in the corresponding period of the previous year.

The main categories of revenue for the period July-September 2017 were: taxes on production and imports €769,0 mn (10,0% increase as compared to the third quarter of 2016), of which VAT was €466,9 mn (14,0% increase), taxes on income and wealth €633,2 mn (13,6% increase), and social contributions €403,3 mn (10,9% increase). Revenue from sales of goods and services reached €127,4 mn registering an increase of 20,4% as compared to the corresponding period of the previous year.

The main categories of expenditure for the period July-September 2017 were: social transfers €584,1 mn (2,4% increase compared to the corresponding period of 2016), and compensation of employees (including imputed social contributions and pensions of civil servants) €545,2 mn (4,1% increase). Intermediate consumption reached €154,0 mn (2,6% increase as compared to the corresponding period of the previous year) (Source: CYSTAT). 

Registered Unemployed

The unemployed persons, registered at the District Labour Offices on the last day of October 2017, reached 26.436 persons. Based on the seasonally adjusted data that show the trend of unemployment, the number of registered unemployed for October 2017 decreased to 31.228 persons in comparison to 32.036 in the previous month.

In comparison with October 2016, a decrease of 7.270 persons or 21,6% was recorded which was mainly observed in the sectors of construction (a decrease of 1.332 unemployed persons), trade (a decrease of 1.286), public administration (a decrease of 973), accommodation and food service activities (a decrease of 771), financial and insurance activities (a decrease of 625), manufacturing (a decrease of 620) and to newcomers in the labour market (a decrease of 686) (Source: CYSTAT). 

Loans and Deposits

Both deposits and loans recorded a drop in September 2017, according to the data of the Central Bank of Cyprus. Total deposits in local banks recorded a net drop of €164,9 million in September reaching €49 billion compared with a net increase of €427 million in August. The annual rate of change was 3,6% in September, compared to  3,7% in August.

Cyprus residents’ deposits recorded a net drop of €131 million, compared with a net increase of €599,9 million in the previous month, dropping to €37,22 billion. However local households deposits recorded a net increase of €20,6 million, to €23,29 billion compared with a net drop of €43,6 million in August. Third country residents’ deposits recorded a net drop of €43,4 million compared to a net drop of €141,1 million in August, at €8,55 billion. However, EU member states residents’ deposits were up by €9,5 million, reaching €3,24 billion compared with a net increase of €31,8 million in August of this year.

Total loans also recorded a drop of €134,6 million this September compared with a net drop of €107 million in August. Total loans in September stood at €52,6 billion. The annual rate of change this September was -1,8% compared to -2,1% in August.

According to the Central Bank`s data, loans of third country residents, Cyprus residents and EU member states residents recorded a drop. Local households loans recorded a net drop of €53,6 million reaching €19,98 billion compared with a net drop of €29,8 in August 2017.

Consumer loans were up by €2,4 million at €2,51 billion, mortgages were down by €29,3 million at €11,13 billion and other loans dropped by €35,6 million, reaching €6,34 billion in September (Source: 

Non-Performing Loans

In July, non-performing exposures (NPEs) declined marginally to €22,36 billion compared with €23,42 billion last month. NPEs amounted to 45% of total loans which declined to 49,46 billion in July, marking a reduction of €0,36 billion compared with June 2017.

According to the CBC figures, the monthly reduction is mainly attributed in the migration of restructured non-performing loans to the performing loans portfolio. Under the European Banking Authority Directive, a restructured loan should be considered as non-performing for at least 12 months.

Compared with July 2016, NPEs marked a sizeable reduction of €2 billion or 8,1%. The banks’ accumulated provisions remained unchanged to €10,47 billion resulting in a coverage ratio of 47% over the total NPEs. Compared with January 2017, accumulated provisions marked an increase of €625 million or 6,35% (Source:

VAT on building land

Parliament has approved a bill imposing 19 % VAT on the sale of building land, fulfilling an EU condition some 10 years after the original deadline. The new law will come into force on January 2, 2018.

The land falling under the category of undeveloped building land will be determined by regulations passed by parliament. Protected zones and farming land will be exempted.

VAT will be imposed on all sales of building plots taking place as part of economic activity. According to the tax commissioner, any other cases will be examined individually (Source:

Trade deficit

Cyprus Total exports of Goods amounted to 2,2 billion euro in the period January to September 2017, a 8% increase compared to the same period of 2016 (0,8 billion to the EU, or a -22% decrease and 1,4 billion to the rest of the world, or a 38% increase), according to Eurostat, the statistical office of the European Union.

Meanwhile total imports amounted to 5,4 billion euro for the same period, also increasing by 6% compared to the same period of 2016 (3,4 billion from the EU, or  -4% decrease and 2,0 billion from the rest of the world or 31% increase).

As a result, Cyprus records a -3,2 billion trade deficit for the period of January to September 2017, compared to -3,0 billion trade deficit of the same period of 2016. Trade deficit with the EU increase to -2,6 billion from -2,5 billion last year and to the rest of the world to -0,6 billion, instead of -0,5 billion for the same period of 2016 (Source: Cyprus News Agency).


In October 2017, the Harmonized Price Index increased by 0,4% when compared to October 2016, while compared to September of 2017 decreased by 0,6%. For the period January - October 2017 the HICP recorded an increase of 0,8% compared to the corresponding period of the previous year (Source: CYSTAT).

Price Index of Construction Materials

The Price Index of Construction Materials for September 2017 reached 101,43 units (base year 2010= 100,00),  recording an increase of 0,66% compared to August 2017. For the period January - September 2017, the index recorded an increase of 0,35% compared to the same period of 2016 (Source: CYSTAT). 

Industrial Output Prices Index

The Industrial Output Prices Index for September 2017 reached 100,0 units (base 2010=100), recording a decrease of 1,2% compared to August 2017. For the period January-September 2017, the index showed an increase of 3,4% compared to the corresponding period of the previous year. For Manufacturing, the index for September 2017 reached 103,3 units, recording an increase of 0,2% compared to August 2017. (Source: CYSTAT).

Cyprus upgraded by Fitch

Fitch Ratings has upgraded Cyprus`Long-Term Foreign-Currency Issuer Default Rating (IDR) to `BB` from `BB-`. The Outlook is Positive.

According to Fitch, Cyprus is experiencing a strong improvement in the performance of its public finances. The budget is on track to record a surplus of 1% of GDP in 2017, after 0,4% in 2016, compared with the `BB` median of a 3,2% deficit. Gross general government debt (GGGD) is forecast to fall just below 100% of GDP in 2017 from 108% at end-2016, owing to strong nominal GDP growth, the budget surplus and a one-off effect from early debt repayment. Medium-term debt dynamics point to a firmly declining trend. The baseline medium-term assumptions of 2% GDP growth and gradually increasing effective interest rates would lead GGGD to decline to around 80% in 2022, an average 4pp decline annually.

The economic recovery has broadened and GDP growth has consistently outperformed forecasts over recent years. Fitch now forecasts an average 3,5% GDP growth in 2017 and 2018, in light of the broad-based recovery in 1H17 (3,6) and improving confidence indicators, compared with around 2,5% a year ago when Cyprus was upgraded to `BB-`. The recovery is also reflected in the labour market, where unemployment rate has declined to 10,6% in 2Q17 from a post-crisis peak of 16% in 2014.

The sovereign is gradually rebuilding its track record of market access: it issued a seven-year bond in June 2017 at a 2,8% yield. Current cash reserves exceed the sovereign`s total 2018 financing needs.

Notwithstanding the cyclical recovery, the banking sector`s exceptionally weak asset quality remains a key weakness for Cyprus` credit profile and material downside risk to the recovery. The ratio of non-performing exposures (NPEs) to total loans was 44,1% in June 2017, among the highest of Fitch-rated sovereigns, compared with 46,4% in December 2016. The total value of NPEs was EUR 22,8 billion, more than 125% of GDP, but down from a peak of EUR 28,4 billion in December 2014. Losses on unreserved NPEs could be significant if further haircuts were needed to liquidate underlying collateral, highlighting the potential need for further capitalisation. In such a scenario, it is unclear if that would come from the private or public sector.

Deposits in the banking sector were EUR 49,1 billion in August 2017, little changed since December 2016, but liquidity conditions have improved, reflected for example in the full repayment of ECB emergency liquidity assistance balance earlier this year. However, the sector`s liquidity remains sensitive to changes in market sentiment (Source:

Registrations of Motor Vehicles

In January-October 2017 the total registrations of motor vehicles increased by 31,2% to 36.669, from 27.946 in the corresponding period of 2016. The registrations of passenger saloon cars increased by 31,8% to 30.380, from 23.049 in January-October 2016 (Source: CYSTAT).

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