Economic Analysis

The Economy of Cyprus: An Overview – November 2007

The Economy of Cyprus: An Overview
Authors: G. Hardouvelis, C. Vorlow, E. Davradakis, E. Georgopoulos, I. Gkionis, T. Sabaniotis
Publications: Economy & Markets, Issue 9, Volume 2, November 2007

Key points: 

  • Euro area membership as of January 2008 is expected to promote Cyprus as an international business hub in the Eastern Mediterranean.
  • The favorable macroeconomic environment, the continued rise in loan demand and the containment of operating costs contribute to strong bank profitability.
  • The rebound in the sectors of financial intermediation and tourism together with the hot property market underpins the recent growth performance of 3.8%.
  • Fiscal consolidation is on track with the general government deficit declining from 6.3% of GDP in 2003 to 1.5% in 2006, and the government debt from 69% of GDP in 2003 to 65% in 2006.
  • The current account deficit deteriorated from 2.0% of GDP in 2003 to 5.9% in 2006, reflecting higher oil prices and strong domestic consumer demand.
  • VAT harmonization is expected to add one percentage point to inflation in 2008-2009.

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