Cyprus Business Forecast Report Q3 2008

Publication Date	May 2008
Publisher	Business Monitor
Product Type	Report
Pages	48
ISBN Number	1746-5761
Product Code	BMI01248

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Summary

Risks To Growth Remain In play During 2008 The most important challenge in Cyprus remains finding a binding and lasting solution to the ongoing division of the island between the recognised Greek south and the ethnic Turkish-controlled northern region. The election of a new president, Demetris Christofias, in February, has opened a window of opportunity to make progress on the matter, and has already turned reunification rhetoric into positive action by opening a major border crossing in the capital Nicosia. We believe a fresh round of negotiations, brokered by the UN and EU, could yield some results, though a full resolution still seems a distant prospect. On the economic front, the smooth entry into the eurozone in January should boost trade and investment within the bloc.

The election of a communist president in February may have caused some discomfort among investors, though we do not expect a radical reversal of policy in the short term. After months of uncertainty, the comfortable victory for Christofias should return stability to the political climate in the immediate future. Christofias won the election by casting aside traditional communist rhetoric and promising a commitment to the free market economic model, albeit with a greater role for the state in the social sector. Christofias is also bound by strict rules governing economic policy within the single currency bloc. However, promises to boost social spending could yet lead to some slippage in the fiscal accounts, as well as exacerbate current concerns over inflation.

The economy posted strong growth of . % in 007, and should continue to expand at a rate above the eurozone average over our five-year forecast period, though with some moderation to . - .0%. That said, our core scenario faces some prominent downside risks, mainly due to the country's historical vulnerability to external shocks, and the current turmoil in global financial markets.

Cyprus also faces threats to stability from a recent upswing in inflation and a rapid decline in the trade and current account deficits. We see both of these indicators remaining key risks over the forecast period, as robust domestic demand growth puts pressure on both price and import growth.

Cyprus' business environment has been given a boost by accession into the eurozone this year, due to the removal of many transaction costs. However, investment activity will continue to be weighed down by the island's political problems, which are a major deterrent for investors. In addition, the traditionally important sector of tourism is suffering from a decline in competitiveness relative to other popular destinations. However, the banking sector is developing rapidly, offering easy access to credit for businesses, while the property market is expected to benefit from increased confidence in the currency among foreign investors.

Content

Executive Summary
- Risks to Growth Remain in Play during 2008
Chapter 1: Political Outlook
- SWOT Analysis
- Bmi Political Risk Ratings
- Domestic Politics
- Christofias Takes The Reins
- A New Communist-LED Government in Cyprus Brings with IT A Mixed Bag of Renewed Hope for Political Re-Unification
- on The Island and Investor Anxiety over Economic Discipline amid Global Financial Insecurity
List of Tables
- Table: Cyprus Political Overview
Chapter 2: Economic Outlook
- SWOT Analysis
- Bmi Economic Risk Ratings
- Monetary Policy
List of Tables
- Table: Monetary Policy
- Economic Activity
- Growth to Moderate, but Remain Buoyant
- after Expanding by A Robust 4.4% in 2007, Economic Growth Is Expected to Moderate Going Forward, with Our
- Forecast for 2008 Standing at 3.9%
List of Tables
- Table: Economic Activity
- Fiscal Policy
- Caution Advised
- 2007 Was A Boom Year in The Fiscal Accounts, with An Unexpected Surplus Equal to 3.3% of Gdp Marking A Major
- Turnaround following Several Years of Deficits
- Balance of Payments
- Current Account in Freefall
- Cyprus' Current Account Deficit Has Soared of Late, as A Boom in Imports and Stagnation in Export Growth Has
- Severely Damaged The Merchandise Trade Balance
List of Tables
- Table: Balance of Payments
Chapter 3: Special Report
- Business Outlook for Global Frontier Markets
- Growing Fast on The New Frontier
- The 41 States That Bmi Examines in A New Report on Our Online Service May Make up Only A Small Slice of The World
- Economy, but They Possess Characteristics That Will See Them Gain Importance in The Eyes of Investors and Global
- Businesses over The Coming Years
- Frontier Investment
- Potential and Pitfalls
- The Spectacular Macroeconomic Performance of Frontier Markets in Recent Years Has Been Matched by Mildly
- Successful Efforts to Deepen Capital Markets
List of Tables
- Table: Frontier Markets - Key Data and Projections for Top 10 Countries
- Table: Gdp per Capita, US$ (in Order of % Increase)
- Table: Diversify through Frontier Markets - Correlation Coefficients January 2004-April 2008
- Table: Frontier Market Indices
- Regional Overview
- from Hidden Dragons to Final Frontiers
- Laos
- Neighbouring Economic The Key to Growth
- Laos's Gdp Growth Has Been Boosted in Recent Years as Neighbours China, Thailand and Vietnam Compete for Its
- Natural Resources. Gdp Expansion in 2007 Has Been Estimated at 7.6% and We See Annual Growth Remaining above
- 7% for Our Five-Year Forecast Period
- Yemen
- Huge Potential, but Don't Bank on Gcc Membership
- Markets Do Not Come Much More Frontier than Yemen, and, as Would Be Expected, There Is Huge Potential for
- Development, with The Prospect of Eventual Gcc Membership Likely to Act A Key Investment Pull
List of Tables
- Table: Yemen - Economic Activity
- Democratic Republic of The Congo
- Mining Industry to Drive Growth
List of Tables
- Table: Democratic Republic of The Congo - Economic Activity
- Cuba
- Investment Prospects after Fidel
- The Accession of A New Leadership Structure in Cuba Has Sparked Excitement That The 45-Year-Old Trade Embargo
- with The US May Be Lifted and Cuba May Move toward Market Liberalisation
List of Tables
- Table: Cuba Macroeconomic Data and Forecasts
- Mongolia
- Minerals to Drive Economic Boom
- Mongolia Is in The Midst of A Massive Resource-LED Economic Boom That Should Lift Gdp Growth into The Double
- Digits and Underpin Robust Increases in Exports and Inflows of Foreign Investment Capital over The Long Term
List of Tables
- Table: Mongolia - Economic Activity
Chapter 4: Business Environment
- SWOT Analysis
- Bmi Business Environment Risk Ratings
- Business Environment Outlook
List of Tables
- Table: Bmi Business and Operational Risk Ratings
- Institutions
List of Tables
- Table: Bmi Legal Framework Ratings
- Infrastructure
- Market Outlook
List of Tables
- Table: Europe, Fdi Annual Inflows
- Operational Risk