Country Report Cyprus July 2009

Outlook for 2009-10

• Negotiations have made slow progress, but the Turkish Cypriot and Greek Cypriot leaderships remain committed to finding a settlement. The Economist Intelligence Unit puts the chances of a solution by end-2010 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 started to deepen.
• We expect the budget balance to swing back into deficit in 2009-10, following surpluses in 2007 and 2008. However, at 2-2.5% of GDP it will remain comfortably below the 3% ceiling for euro area countries.
• GDP growth is forecast to slow from 3.7% in 2008 to 0.7% in 2009 and 1-1.5% in 2010. This would be the weakest performance since 1993, but far better than the forecast declines for the euro area of 4.5% in 2009 and 0.7% in 2010.

Monthly review

• In the European Parliament elections on June 6th the two largest parties, the opposition Democratic Rally (Disy) and the ruling Progressive Party of the Working People (Akel) performed well. Both are pro-settlement.
• Negotiations on the economy chapter were held up by disagreements over the proposed opening of a crossing in Limnitis. As of June 22nd the two sides appeared close to reaching a deal.
• Greek Cypriot hydrocarbon exploration off the Cypriot coast has continued to cause tensions with Turkey and the Turkish Cypriots.
• In the first quarter of 2009 the general government budget recorded a deficit of ???137.7m, compared with a surplus of ???89.9m in the same period of 2008.
• According to national accounts data in the first quarter of 2009, government consumption rose by 12.3% year on year, helping to prevent a much sharper slowdown in economic activity.
• According to the registered unemployed data, the construction sector has seen unemployment rise by 156% year on year in the first five months of 2009.
• Turkish Cypriot zone: Expatriate Britons and Turkish Cypriots have protested against a property ruling by the European Court of Justice (ECJ).
• Turkish Cypriot zone: A US Embassy report into human trafficking on both sides of the island concluded that the north was sorely lacking in action to prevent this taking place, and also lacking in provisions to protect its victims.

Source: Country Report

This report covers the following industry codes:
SIC Code: 49;60;15
NAICS Code: 22;52;23