Country Report Cyprus December 2008

Outlook for 2009-10

• Prospects for a solution to the division of Cyprus have improved. Full negotiations started on September 3rd. The Economist Intelligence Unit puts the chances of settlement during the outlook period at about 40%.
• There will be strong pressure on both communities and Turkey to solve the Cyprus issue as it is hindering external relations for the EU and NATO.
• Economic policy will remain broadly unchanged under the presidency of Demetris Christofias, but we expect the budget balance to swing back into deficit in 2009-10, following surpluses in 2007 and 2008.
• GDP growth is forecast to slow to 3.5% in 2008 and 1.5% in 2009, before picking up to 2% in 2010, remaining well above the euro area average.
• After rising steadily to 5.3% in July, consumer price inflation has begun to ease. The EU harmonised rate is forecast to slow from an estimated annual average of 4.8% in 2008 to 3.2% in 2009 and 2.2% in 2010.
• The current-account deficit is expected to fall from around 10-10.5% of GDP in 2007-08 to about 6.5% in 2009 and 2010.

Monthly review

• The settlement negotiations, which started on September 3rd, have continued to proceed at a slow pace. Unlike the previous negotiations in 2003-04, the UN's input has been limited.
• The general government budget remained in surplus in the third quarter of 2008. According to government estimates, in January-September it was 483.5m (2.9% of estimated GDP).
• On November 12th the three main banks, Bank of Cyprus, Marfin Popular Bank and Hellenic Bank, cut their standard rates on loans linked to the European Central Bank (ECB), following government pressure.
• GDP growth slowed from 3.9% in the second quarter of 2008 to 3.5% in the third quarter, according to a "flash estimate".
• The current-account deficit more than doubled in the first six months of 2008, to 1.5bn compared with 614.8m in the first half of 2007.
• Turkish Cypriot zone: In early November the Turkish government refused to grant the Turkish Cypriot prime minister, Ferdi Sabit Soyer, an emergency loan to help to prop up the flagging northern Cypriot economy.
• Turkish Cypriot zone: The Turkish Cypriot authorities have prepared a 12-chapter road map aimed at bringing legislation in the north into line with the acquis communautaire, the EU's body of laws.

Source: Country Report

This report covers the following industry codes:
SIC Code: 10;2834;80;47;70;60;48
NAICS Code: 212;3254;62;48;72;52;517