FEAS Yearbook FEAS Yearbook 2020 | Page 44

Republic of Cyprus

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The Cypriot economy is continuing the stable growth by attracting investments, supporting businesses and stimulating trades. With the break of the COVID-19 pandemic the economy has taken a severe hit along with many other countries, but early action has proved crucial in Cyprus’ efforts to secure a sustainable and competitive economy. In Cyprus, the pandemic caused the sharpest decline in GDP since 2013. As in the euro area, the recession would be even deeper without the compensatory measures adopted. Real GDP growth in Cyprus is projected at -5.7% in 2020 as a result of the COVID-19 pandemic. The contraction of GDP in 2020 is estimated to be smaller than the initial forecast due to the stronger-than anticipated rebound in economic activity in Cyprus and abroad, following the lockdowns in the spring.

The government has adopted and implemented a generous support scheme for businesses and employment across the range of economic activities, extending many measures to targeted sectors that were hit from the pandemic. The generous fiscal measures were adopted as early as mid-March 2020. The precautionary measures aim at safeguarding employment, providing liquidity to business and avoiding company failures, supporting the self-employed, and strengthening the health care system. In 2021, the Cypriot economy is expected to recover as real GDP growth is projected at 3.7%. The growth forecast for 2021 is revised downwards, due to the resurgence of the pandemic in the last months of 2020 and the renewed containment measures. Downside risks arise from the introduction of stricter measures to curb the spread of the pandemic, especially the new lockdown in January 2021.

Additional risks stem from delays in the vaccine rollout and vaccinations in Cyprus and the EU, as well as from a new wave of infections due to new variants of the virus. Slower-than-anticipated progress with vaccinations and/or a new surge in infections will cause setbacks to the reopening of economic sectors and slow down the recovery of domestic activity and external demand, particularly demand for tourist services.

Other risks relate to pressures on public finances and a possible re-escalation in NPLs as the pandemic persists. Further delays in the implementation of overdue structural reforms (e.g. judicial system, public administration, local authorities) may undermine the country’s credibility, limit access to EU funds and weight on the growth prospects.

Economic Developement