PRESS RELEASE
30 September 2007
PricewaterhouseCoopers’ covering the European economies - a smooth transition from pounds to euros.
Cyprus is projected to maintain a robust pace of growth over the next two years, and enjoy a smooth transition from pounds to euros come 1 January 2008 – according to PricewaterhouseCoopers’ latest report covering the European economies.
PricewaterhouseCoopers’ latest economic analysis shows that the Cypriot economy grew at a robust pace over the first half of 2007, and is expected to expand by 3.9% in 2007 as a whole and by 3.8% in 2008. This growth is significantly above the expected Euroland average rate in both years. The pace of growth for the Euroland economy as a whole was 2.8% in 2006 and is expected to reach 2.6% in 2007 and 2.2% in 2008.
The report focuses on the crucial role of the domestic economy in Cyprus’ solid record of GDP growth in recent years. Looking ahead, the contribution of the domestic economy is expected to outweigh that of the export sector once again in both 2007 and 2008. Consumer spending in particular is likely to perform well through to 2008 owing to favourable labour market conditions and reasonably low interest rates. The domestic economy is likely to continue to benefit from job creation, with labour shortages, in particular within the construction sector, attracting further inflows of foreign workers.
The report finds that Cypriot exports performance is likely to improve in 2008. Sustained growth in Cyprus’ main export markets, namely the UK and Euroland, are likely to drive the improvement in exports growth.
The report suggests that some moderation is anticipated in the Euroland economy 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 a loss in confidence related to global capital market turmoil.
Euroland inflation is expected to average 2% in 2007 and the ECB is not expected to raise interest rates further this year owing to the current credit squeeze which originated from problems with US sub-prime mortgages and related fixed income assets.
Yael Selfin, Senior Economist at PricewaterhouseCoopers, commented that:
“The economic outlook for the Cypriot economy continues to be positive and, as we expected, Cyprus achieved formal acceptance to adopt the euro in 2008. However, inflation should be watched closely over the rest of the year, given the upside risks from robust domestic demand, high oil prices, and the removal of some VAT exemptions come 1 January 2008.”
