Country Report Cyprus September 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 crisis, which has started to deepen.
• We expect the budget balance to swing back into deficit in 2009-10, following surpluses in 2007 and 2008. The general government deficit is now forecast to exceed the 3% ceiling for euro area countries during the forecast period.
• GDP growth is forecast to slow from 3.7% in 2008 to zero in 2009, before picking up to 1.4% in 2010.

Monthly review

• The second phase of the Cyprus peace talks will start on September 3rd, the first anniversary of the launch of fully fledged negotiations.
• The two leaders, the Greek Cypriot Demetris Christofias and Turkish Cypriot Mehmet Ali Talat, have left themselves with a large amount of work to do before the "natural deadline" of end-2009.
• As time runs out there has been talk of a "Plan B", which would involve the leaders signing a framework agreement by the end of 2009, with a promise to produce a comprehensive plan by mid-2010, followed by a referendum.
• The general government budget deficit for January-June 2009 was ???417.7m (US$570m) or an estimated 2.4% of GDP. The minister of finance, Charilaos Stavrakis, is pushing the public-sector unions to accept a wage freeze.
• The economy slipped into recession in the second quarter. GDP fell by 0.5% quarter on quarter, after a decline of 0.6% in the first quarter.
• Having peaked at 5.3% in July 2008, the consumer price inflation rate turned negative in July, when the EU harmonised index fell by 0.8% year on year.
• Turkish Cypriot zone: A government decision to allow Islamic instruction in some Turkish Cypriot schools has met with widespread opposition.
• Turkish Cypriot zone: In late July a UK court ruled against an application by Cyprus Turkish Airlines (CTA) and its UK operator, CTA Holidays, to lift the ban on direct flights between the UK and northern Cyprus.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;70;1;49;48;80;37
NAICS Code: 52;72;11;22;517;62;336