Country Forecast Cyprus

The Economist Intelligence Unit's baseline forecast remains that a settlement to resolve the division of Cyprus is unlikely to be concluded during the forecast period. The main focus of economic policy will be to rein in the public deficit and to prepare for the potential effects of a Greek sovereign debt restructuring. After growing by an estimated 0.5% in 2011, GDP is expected to contract by 1.2% in 2012 owing to the impact of fiscal measures on private consumption as well as weak lending by banks. Acceleration is expected from 2013. Inflation (national measure) is expected to rise from 3.3% in 2011 to 3.5% in 2012, owing to indirect tax rises, then to stabilise. International oil prices will continue to have a substantial impact on the current-account deficit

After another failed UN summit to try to resolve the Cyprus problem in January, it is becoming clear that the political cost of a solution based on current parameters is too high for both the Greek Cypriot and Turkish Cypriot communities. However, it will also be difficult for the UN or the Cypriots to leave the negotiating table, so continued discussions without resolution is the most likely scenario.

After slightly better-than-expected growth in 2011 and a range of measures approved in the latter part of 2011, we have revised down our budget deficit forecast for 2012 to 4.3% of GDP, from 4.5% of GDP previously. However, the expected economic contraction means that the deficit will still overshoot the government's target. SHOW LESS READ MORE >

Country Forecast Cyprus

Cyprus at a glance: 2012-16
OVERVIEW
Key changes from last month
Political outlook
Economic policy outlook
Economic forecast

Cyprus--highlights: Political outlook

Cyprus--highlights: Demographic outlook

Cyprus--highlights: Business environment outlook

Cyprus--highlights: Economic outlook

Cyprus--highlights: Market opportunities

Cyprus--highlights: Long-term outlook

Fact sheet

Political outlook: Political forces at a glance

Political outlook: Political stability

Political outlook: Political and institutional effectiveness
Cronyism is a risk to institutional effectiveness

Political outlook: Election watch

Political outlook: Key players to watch
Demetris Christofias (Akel)
Dervish Eroglu (UBP)
Nicos Anastasiades (Disy)
Nicolas Papadopoulos (Diko)

Political outlook: International relations

Demographic assumptions
Cyprus will face the challenges of an ageing population only in the long term

Business environment outlook: Business environment rankings
A small market, lack of access to Turkey and security risk act as a dampener

Business environment outlook: Cyprus's business environment at a glance
Policy towards private enterprise and competition
Policy towards foreign investment
Foreign trade and exchange controls
Taxes
Financing
The labour market
Infrastructure

Business environment outlook: Macroeconomic environment

Business environment outlook: Policy towards private enterprise and competi
Main telecoms and electricity providers to remain in state hands

Business environment outlook: Policy towards foreign investment
Foreign investment regime will continue to be open

Business environment outlook: Foreign trade and exchange controls
Turkey's refusal to establish transport links with Cyprus is unlikely to change
Financial integration receives a setback

Business environment outlook: Taxes
The company tax regime will remain one of the strongest features

Business environment outlook: Financing
Financing conditions will worsen as a result of the Greek crisis

Business environment outlook: The labour market
The government will no longer be able to resist calls to reform wage indexation

Business environment outlook: Infrastructure
Energy infrastructure will drive up investment
Tourism infrastructure projects will gradually be completed

Economic forecast: Policy trends

Economic forecast: Fiscal policy

Economic forecast: Monetary policy

Economic forecast: International assumptions

Economic forecast: Economic growth

Economic forecast: Sectoral trends
Tourism will remain the single most important sector
Financial and business services are future growth sectors
Industry will boom

Economic forecast: Inflation

Economic forecast: Exchange rates

Economic forecast: External sector

Economic forecast: Foreign direct investment in Cyprus
Stocks and flows
Origin and distribution
Determinants
Impact
Potential

Market opportunities: Market outlook

Long-term outlook: The long-term outlook
Labour force will grow only moderately in the long term

Long-term outlook: Methodology for long-term forecasts
Growth projections
Definitions of variables
The independent variables include:
Summary of findings
Productivity growth

Data summary: Global outlook

Data summary: Gross domestic product, current market prices

Data summary: Gross domestic product, at constant prices

Data summary: Gross domestic product by sector of origin

Data summary: Growth and productivity

Data summary: Economic structure, income and market size

Data summary: Fiscal indicators

Data summary: Monetary indicators

Data summary: Employment, wages and prices

Data summary: Current account and terms of trade

Data summary: Foreign direct investment

Data sources and definitions
Global data
Domestic data
Comments

Guide to the business rankings model
Outline of the model
Calculating the rankings
Measurement and grading issues

Indicator scores in the business rankings model