Country Report Cyprus February 2009

Outlook for 2009-10

• Full settlement negotiations started in September 2008, but progress has been painfully slow. 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 on Turkey to solve the Cyprus issue as it is hindering external relations for the EU and NATO.
• The main focus of economic policy in 2009-10 will be trying to mitigate the impact on the Cypriot economy of the global financial and economic crises, which has been limited so far, but is expected to deepen.
• 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 from an estimated 3.5% in 2008 to 1% in 2009 and 1.6% in 2010. This would still be above the euro area average, but the weakest growth that Cyprus has recorded since 1993.
• Inflation, according to the EU harmonised measure, is forecast to slow from an estimated annual average of 4.4% in 2008 to 1.5% in 2009, before edging up to 2.2% in 2010.

Monthly review

• The momentum of the negotiations increased slightly in January 2009, with the announcement that full convergence had been reached on governance. The next issue is property, which will be much more difficult.
• The government returned to the debt markets in January after an absence of 21 months. The government had not issued any debt since September 2007 because it has been running a budget surplus.
• Bank lending remained high in October-November 2008. Loans to domestic residents rose by an average of 31% year on year. Perhaps giving an indication of future trends, lending fell by 0.1% month on month in November.
• Turkish Cypriot zone: The coalition government comprising the Republican Turkish Party (CTP) and the Freedom and Reform Party (ORP) has called an early general election, to be held on April 19th 2009.
• Turkish Cypriot zone: On December 18th 2008 the advocate general of the European Court of Justice recommended upholding a Greek Cypriot court ruling in the Orams property case. The opinion is not binding on the court.

Source: Country Report

This report covers the following industry codes:
SIC Code: 80;47;82;49;48;1;60;10;59;15;39
NAICS Code: 62;48;61;22;517;11;52;212;44;23;31