Country Report Cyprus June 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 a 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 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 1.2% in 2010. This would compare well with a 4.5% decline for the euro area in 2009, but will be the weakest growth that Cyprus has recorded since 1993.

Monthly review

• The victory of the hardline National Unity Party (UBP) in the Turkish Cypriot legislative elections on April 19th 2009 has given negotiators a wake-up call.
• On April 28th the European Court of Justice (ECJ) ruled in a Turkish Cypriot property dispute that court judgments in the south that cannot be enforced in the north can be enforced in other EU member states.
• In the first quarter tax revenue in the government-controlled area was down by 10.2% year on year, owing to large falls in capital gains tax and stamp duty.
• According to preliminary flash estimates, GDP growth slowed sharply in the first quarter of 2009. It was flat quarter on quarter and just 1.6% year on year, despite strong growth in financial services.
• Tourist arrivals fell by 15.2% in the first quarter and by 8.6% in January-April as the number of visitors from the UK, which accounts for more than half of all visitors to Cyprus, have plummeted.
• Turkish Cypriot zone: A day after the Turkish Cypriot election, the prime minister of Turkey, Recep Tayyip Erdogan, warned the UBP that his government would not tolerate any acts that might jeopardise the talks.
• Turkish Cypriot zone: The prime minister, Dervish Eroglu, appointed Huseyin Ozgurgun as foreign minister. Mr Ozgurgun, a moderate, is likely to attend negotiations with the president, but is not expected to play an active role.

Source: Country Report

This report covers the following industry codes:
SIC Code: 70;10;60;39
NAICS Code: 72;212;52;31