Gold Magazine December 2013 - January 2014, Issue 33 | Page 42

9
OPINION

Why does the
Cyprus economy
keep surprising
on the upside?

Months

B

By Fiona Mullen

ack in the dark days
of March, when my
phone was ringing
literally every 20
seconds with a call
from another international journalist
staked out at the
Hilton Cyprus, I
was asked what I
thought the growth rate would be this year.
I stuck my finger to the wind and said “Minus
15% this year and next”. My reasoning, if
it was possible to reason at all on just a few
hours’ sleep each night, was that this was a
similar economic shock to 1974. Back then,
the economy dropped by 16.9% in 1974
and 19% in 1976 before bouncing back to

18.2% in 1977. One of my keenest memories of those March-April days is finishing
my growth-linked employment forecast at
4 o’clock one morning. When the number
popped up, I burst into tears: for the lost
generation of young Cypriots, and for the
meanness with which the Eurogroup and their
all-too pliant media had treated little Cyprus.
As I have argued elsewhere, the debt sustainability argument simply does not hold
water, especially when you see how they keep
pouring money into Greece.
A full bailout would have seen us well on
the way to growth by now, and could still
have been accompanied by a tough Troika
programme and the thumb-screws on our
money-laundering record.
But, as the saying goes, it’s no use crying

over spilt milk. And maybe there is less reason
to cry now anyway. Nine months later, I am
forecasting minus 5.5% this year and minus
5.8% next.
My unemployment forecast is still nasty
but it now peaks at 20% instead of 25%.
And it is not only the economic decline that
has not been as bad as expected. At 47.5%,
the final haircut at Bank of Cyprus was less
than the 60% initially projected and the 90%
feared. The budget deficit has continued to
outperform, even if you knock off the €174m
in gas-licence fees. Capital flight slowed to a
trickle in October. And we have now had two
positive Troika reviews.
This is not to belittle the social cost: the
people who have lost their life savings, the
rising ranks of the unemployed, and the disenfranchised poor who struggle to eat, visible
only in the rising number of free meals at
school.
But it is still worth asking: why has Cyprus
continued to surprise on the upside?
Is the country so resilient or is there worse
still to come? There are arguments on both
sides.
One argument on the positive side is that
private businesses have adapted very fast to the
downturn. I do not know anyone outside the
shipping sector who has not had a pay cut, for
example.

info: Fiona Mullen is the Director of Sapienta Economics Ltd and a Partner in Strata Insight energy advisory. Subscribers to Sapienta Country Analysis Cyprus enjoy a monthly
42 Gold the international investment, finance & professional services magazine of cyprus