Cyprus Business Forecast Report Q2 2008

Publication Date	February 2008
Publisher	Business Monitor
Product Type	Report
Pages	44
ISBN Number	1746-5761
Product Code	BMI00279

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Summary

Eurozone Entry To Stimulate Trade The Republic of Cyprus' accession to the eurozone on January 1 2008 is expected to bring benefits in terms of increased trade and foreign investment. Membership of the currency union also makes it imperative that the authorities improve the flexibility of fiscal policy, promote wage and price flexibility and press ahead with reforms and initiatives to diversify the economy and increase its resilience to country-specific shocks. Progress is likely to be made over the coming years but the pace and depth of reforms will depend, to some extent, on the outcome of February's presidential elections.

The elections look like being the most keenly contested in the island's history and any of the three main candidates - Tassos Papadopoulos, the incumbent, Demetris Christofias, the leader of the communist party Progressive Party of Working People (AKEL), and Ioannis Kasoulides, an independent aligned to the second largest party Democratic Rally (DISY) - could potentially win. Our general view is that efforts to reunite the divided island are likely to be strongest under Christofias or Kasoulides, but that economic management would be weakest under an AKEL-led administration.

Political developments are unlikely to have any impact on the economy in the short term. Real GDP growth is expected to slow to a still-strong 3.9% in 2008 from 4.4% in 2007, with robust domestic demand providing a temporary buffer against a worsening and more uncertain international economic outlook. Domestic financial conditions remain mildly supportive of economic activity following interest rate cuts at the start of the year and fiscal policy has been eased ahead of the elections.

There are some signs of cooling in the home building sector, but fixed investment spending is expected to remain reasonably buoyant due to ongoing infrastructure projects and large-scale commercial real estate developments. On the downside, inflation accelerated towards the end of 2007 and is expected to remain above 3 % in 2008 owing to the strength of global oil prices and the narrowing of the economy's output gap.

Content

Executive Summary
Eurozone Entry To Stimulate Trade
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Political Outlook
Election Race Goes Down To The Wire
We believe that the forthcoming presidential election is too close too call. President Tassos Papadopoulos has a
reasonable chance of remaining in power but there is also a possibility that the island could see its first
communist leader.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Introduction
Eurozone Membership Not A Panacea...
Trade and investment are likely to receive a small boost from Cyprus' entry to the eurozone. Further efforts are
needed to improve the competitiveness and supply-side response of the economy.
Economic Activity
A Credit-Fuelled Building Boom
Mildly supportive financial conditions, looser fiscal policy and strong, though moderating, construction activity
are expected to keep real output growth close to 4% in 2008.
Monetary Policy
The Inflation Conundrum Of The Eurozone
The strength of global oil prices and the narrowing of the economy's output gap are likely to keep consumer
price inflation at reasonably high levels during 2008.
Fiscal Policy
Budget Posts Unexpected Surplus
The budget is in surplus and public debt is declining but political developments cast a cloud over the fiscal
outlook.
Chapter 3: Special Report
Looking Beyond 2008
US: The Rebalancing Act
Unwinding The Imbalances
We believe that a substantial, multi-year shift in the US external accounts is under way. A weak US dollar and
subdued domestic consumption should lead to a narrowing in the US's structural current account deficit.
China: What If We're All Wrong?
Our Core Scenario For China
We are retaining our positive headline growth projections for China across the forecast period to 2012, with
our expectations of the continued success of the urbanisation process and export-driven growth model
underpinning our assumptions.
Japan: Immigration Key To Long-Term Growth
Demographic Woes Portend Long-Term Decline
Immigration remains the only realistic way that Japan can overcome its long-term economic challenges.
Business Monitor International Ltd
cyprus Q2 2008
Chapter 4: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Introduction
As a member of the EU and the eurozone, Cyprus has a high level of institutional development, infrastructure
and a regulatory framework in line with EU standards and norms.
Institutions
Infrastructure
List of Tables
- Table: Cabinet List
- Table: Economic Activity
- Table: Monetary Policy
- Table: BMI Business And Operational Risk Ratings
- Table: BMI Legal Framework Ratings
- Table: Europe, FDI Annual Inflows
- Table: BMI Trade Ratings

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Product features / use

Scope	Expert Insight/Opinion
Level	General Industry Strategies
Data	Detailed Market Forecasts
Profiles	Profiles of Key Companies
Features	Contains SWOT Analysis
Extra Info	Consumer Trends Highlighted