PRESS RELEASE
10 May 2007
Cyprus is expected to continue growing at a robust pace over the next two years, and looks set to meet the Maastricht criteria comfortably for euro adoption in 2008, according to PricewaterhouseCoopers’ latest report covering the European economies.
PricewaterhouseCoopers’ latest economic analysis (30 April 2007) shows the Cyprus economy grew by 3.8% in 2006 and is projected to expand by 3.9% in 2007 and 3.8% in 2008, clearly above the Euroland average growth rate in both years. The pace of growth for the Euroland economy as a whole was 2.7% in 2006 and is expected to reach 2.1% in 2007 and 2.2% in 2008.
The report highlights the role of domestic demand in Cyprus’ solid record of economic growth in recent years, with the contribution of the domestic economy expected to outweigh that of the export sector again in 2007 and 2008. The report argues that domestic demand is likely to continue to be the main driver of overall growth despite consumer spending and investment growth decelerating slightly in 2007. Investment growth in particular is expected to remain relatively buoyant over the next two years owing to still-low interest rates and planned liberalisation in the energy and telecommunications sectors. The domestic economy is likely to continue being supported by employment gains, with labour shortages attracting further inflows of foreign workers.
On the external sector, the report finds that Cyprus’ exports performance is likely to improve in 2007, in part linked to an improved tourism picture after a shock in 2006. Continued growth in Cyprus’ main export markets, the UK and Euroland, are also likely to drive the improvement in exports growth.
The report suggests the Euroland economy achieved a healthy pace of growth in 2006, growing by its fastest pace since 2001. However, a slowdown is anticipated in 2007 owing to tighter fiscal policy in a number of member states, the lagged effects of past ECB interest rate rises, a further possible appreciation of the euro and an expected slowdown in the US impacting on Euroland exports growth.
Euroland inflation is expected to average 2% in 2007 and the ECB is likely to raise interest rates twice this year to 4.25% in order to contain price pressures and anchor inflation expectations.
Yael Selfin, Senior Economist at PricewaterhouseCoopers, commented that:
“The economic outlook for the Cyprus economy is favourable and the goal of adopting the euro in 2008 is certainly within reach. Inflation should be watched closely this year, given the upside risks from excess credit in the economy.”
For full details, please view PwC's Cyprus Economic Update - April 2007.
-END-
