The Cyprus Economy: from Recovery to Sustainable Growth. Vincenzo Guzzo Resident Representative in Cyprus

Transcription

1 The Economy: from Recovery to Sustainable Growth Vincenzo Guzzo Resident Representative in

2 Growth momentum remains strong 18 : Real GDP ( billion) 1 Deviation from Pre-Crisis Level and Trend (Percent) Spain Portugal Italy Greece -8 Actual Estimate Deviation from Level Deviation from Trend Source: CySTAT, IMF staff estimates Source: IMF staff estimates Note: data are percentage differences of IMF World Economic Outlook estimates for 217 from pre-crisis levels and trends. Levels are 27 data. Trends are linear regression trends fitted using data for

3 Nearly all sectors contribute to the recovery : Contributions to GDP Growth (Percent) Professional, Administrative, and Arts Financial and Insurance Construction Real esta te Trade, Hotels, and Communication Agri and Ma nufacturing GDP growth (percent, yoy) -1 21Q2 211Q2 212Q2 213Q2 214Q2 215Q2 216Q Source: CySTAT, IMF staff estimates

4 Indicators point to broad-based expansion 3 : Retail sales and credit card transactions (Percent, y/y) 3 6 : Registration of motor vehicles (Percent, y/y) Retail sales (volume index, excluding fuel) Credit card transactions (residents) -3 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan Building permits authorized Local sales of cement : Construction (y/y change, percent) : Tourist arrivals (Thousand Persons) Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17-6 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: CySTAT, JCC Payments and IMF staff estimates

5 Jobs are being created : Labor Force (thousands) and Unemployment Rate (Percent of Labor Force) 1 Unemployment Rate (Percent of Labor Force) Spain Slovak Republic Ireland Portugal Lithuania Greece Slovenia Netherlands Finland Malta Belgium Germany Luxembourg France Italy Latvia Austria Estonia Employment Unemployment Unemployment Rate (rhs) Change from a year earlier (lhs) 216 Peak (28-216) Source: CySTAT Source: Eurostat, IMF staff estimates

6 Structural challenge #1: demographics are not favorable Population Growth (Percent) Ireland Luxembourg Spain Malta France Netherlands Portugal Greece Austria Belgium Finland Italy Slovenia Germany Slovak Republic Estonia Lithuania Latvia : Share of Workers Aged (Percent of Labor Force) Source: IMF staff estimates Source: CySTAT

7 Structural challenge #2: productivity has slowed down; investment share has shrunk 4 Employment and Labor Productivity (Percent Change) Total Investment (Percent of GDP) Greece Italy Portugal Spain Greece Italy Portugal Spain Greece Italy Portugal Spain Source: IMF staff estimates Employment Labor Productivity Greece Italy Portugal Spain Source: IMF staff estimates

8 Restructuring has gained momentum, but NPLs remain very high 32. : Non-Performing Exposures Non Performing Exposures (lhs, billion) Private Sector Debt, Consolidated (Percent of GDP, 214) 3. Non-Performing Exposures Ratio (rhs, percent) Dec- 14 Mar- 15 Jun-15 Sep-15 Dec- 15 Mar- 16 Jun-16 Sep-16 Dec Luxembourg Ireland Netherlands Denmark Sweden Portugal Belgium UK Spain Finland France Malta Austria Greece Italy Estonia Croatia Bulgaria Germany Latvia Slovenia Hungary Slovakia Poland Czech Republic Romania Lithuania Source: Central Bank of Source: Eurostat

9 Policy priority #1: accelerate NPL workouts Banks should be further encouraged not to defer restructuring in the expectation that future increases in output and property prices would autonomously improve recovery rates They should focus on durable and sustainable loan work-outs It is important that newly-issued bank lending, which is providing welcome support to the economy, is underpinned by robust lending policies, strong business plans from borrowers and close monitoring of credit risk

10 The primary surplus is sizeable, but public debt remains high 4. Primary Fiscal Balances, 216 (Percent of GDP) 12 : Gross Public Debt (Percent of GDP) Estimate Actual Source: IMF staff estimates Source: Eurostat

11 Policy priority #2: frontload public debt reduction Accelerating public debt reduction would help direct additional resources to growth-enhancing investment, thus supporting potential output Targeting a primary surplus of 3 percent of GDP for the next several years while saving any over-performance would help create a prudent buffer and safeguard the downward trajectory of debt in the event of adverse shocks Guarding against fiscal slippages, including from the envisaged national health service as well as from wage and social benefit spending, will also be essential

12 Policy priority #3: reinvigorate structural reforms Advancing the reform agenda would increase capacity to cope with external shocks and create sustainable job opportunities by improving the business environment Focus should be on expediting judicial reform to strengthen legal enforcement of commercial claims and speed up court procedures and on streamlining business procedures to attract new investment Completing pending reforms in the areas of revenue administration and public financial management and adopting the package of civil service reform bills would also help safeguard public finances over the medium term Restarting the privatization program would also contribute to lowering public debt, while increasing economic efficiency

13 The economy: from recovery to sustainable growth Thank you