Cyprus Economy Developments February 2018 Treasury and Correspondent Banking Department

Transcription

1 Cyprus Economy Developments February 2018 Treasury and Correspondent Banking Department Major recent developments in Cyprus Cyprus Macroeconomic Developments Cyprus Real GDP (seasonally adjusted) recorded a positive rate of growth of 3.9% during Growth is expected to reach 3.6% in 2018 and 2.9% in 2019 (IMF s December projections). Unemployment decreased to 11.1% in December It averaged at 11.3% in 2017 and is expected to average at around 10.0% in 2018 and 9.1% in 2019 (IMF s December projections). Inflation (HICP) decreased by 0.4% in December 2017 compared to December For the period January December 2017, HICP recorded an increase of 0.7% compared to the correspondent period of the previous year. In January 2018, HICP decreased by 1.5% compared to the correspondent month of HICP is expected to be around 0.7% in 2018 and 1.1% in 2019 (IMF s December projections). Cyprus current account deficit stands at 399 million (2.1% of GDP) for the period January to September 2017, compared to a deficit of 889 million (5.0% of GDP) for the year Arrivals of tourists have recorded an increase of 15.0%, for the period January December 2017, compared to the corresponding period of In January 2018, arrivals of tourists increased by 21.2% compared to January For January November 2017, revenue from tourism is estimated to have increased by 11.7% compared to January November of Property sales have recorded an increase of 23.7% during January December 2017 (8,734 property sales) compared to the corresponding period of 2016 (7,063 property sales). In January 2018, property sales increased by 64% compared to January The Turnover Volume Index of Retail Trade for December 2017 increased by 7.2% compared to the corresponding month of the previous year. For the period January December 2017, the index is estimated to have recorded an increase of 6.2% compared to the same period of In January December 2017, the total registrations of motor vehicles increased by 29.1% to 43,640 from 33,805 in the corresponding period of In January 2018, the total registrations of motor vehicles increased by 20.1% to 4,123 from 3,434 in January Cyprus Fiscal Developments Developments in public finances continue to exceed expectations. General government budget balance (GGBB), also known as Fiscal Balance, stands at 361 million surplus (1.9% of GDP) from January December 2017 compared to a surplus of 82 million (0.5% of GDP) in January December General government primary balance (GGPB), also known as Primary Balance, during January December 2017, GGPB stood at 841 million surplus (4.5% of GDP) compared to a surplus of 547 million (3.0% of GDP) for January December Cyprus Public Debt and Financing: The General Government Debt reached 18.7 billion in December Debt to GDP has decreased to 98.4% in Cyprus is BB+/Ba3/BB/BB (low) rated by S&P/Moody s/fitch/dbrs agencies, with a positive outlook.

2 Latest Treasury Bills auction of 13-week duration with settlement date the 2 nd of March 2018 had an average yield of -0.21% and a bid to cover ratio of 1:3.77. Banking Sector Deposits in the banking system are on a slight upward trend since the second half of In December 2017, deposits amounted to 49.4 billion, compared to 49.2 billion in November 2017 and 49.0 billion as at the end of Loans are on a downward trend. The outstanding amount of loans has decreased to 51.4 billion in December 2017 compared to 55.2 billion in December Restructurings were 12.7 billion at 31/06/2017 ( 13.5 billion on 31/12/2016, and 14.2 billion at 31/12/2015). Data show that 68.0% of undertaken fixed-term loan restructurings abide by the new repayment schedule agreed as part of the restructuring. The outstanding amount of Cyprus banks on ECB s Open Market Operations, amount to 0.93 billion as at end December 2017, down from its peak of 13.6 billion in September The NPLs (Exhibit 1) are on a downward trend (even though they are still at high levels) and amount to 21.8 billion as at October 2017 compared to 24.3 billion in December 2016 and 27.3 billion in December However, Cyprus Banking NPLs ratio has decreased slightly from 45.3% as at end 2015 to 43.0% as at October 2017, mainly due to the decrease of outstanding loans from 60.2 billion as at end 2015 to 50.6 billion in October Exhibit 1: NPL ratio to Total Gross Loans Total New Lending for the period January December 2017 has increased by 42.2% compared to the period of January December Corporation loans increased by 45.0%, Consumption loans by 51.0% and Housing loans by 33.0%. Total new lending for the period January December 2017 amounts to 3.0 billion compared to 2.1 billion of the corresponding period of Detailed figures are illustrated in Table 1.

3 Table 1: New Loans (excluding renegotiation) New Loans (excluding Renegotiation) Amounts in millions Jan-Dec 2016 Jan-Dec 2017 %Δ Jan-Dec 2017/16 Corporations Loans 4,953 4,398 3,734 3,253 3,122 1,414 1,158 1,479 1,479 2,143 45% Consumption Loans 1, % Housing Loans 2,098 3,017 1,907 1,518 1, % Total 8,324 8,179 6,334 5,318 4,788 1,983 1,504 2,134 2,134 3,035 42% DBRS Global Sovereign Rating: Cyprus Election: A Solid Mandate for Policy Continuity On February 7, 2018, DBRS kept the trend on the ratings Positive. In DBRS s view, the latest election result gives President Anastasiades a solid mandate for a second consecutive term. With the presidential elections settled, the focus moves back to addressing the challenges Cyprus faces. These challenges are related to the reduction of banks high non-performing loans (NPLs) and still high private sector debt, as well as maintaining healthy growth prospects and public finances. The resumption of the reunification talks is also likely to come to the fore, as the reunification of Cyprus was one of the most important topics during the election campaign. DBRS sees the election outcome as reducing the uncertainty over the direction of economic policies. DBRS expects continuity on fiscal policy and the debt management strategy, and more progress on efforts to address banking sector vulnerabilities, after delays on pending reforms in Parliament ahead of the elections. Table 2: Major Macroeconomic Indicators 2016 Actuals Figures and 2017/18/19 Projections 2017 (Actuals) (Projections)* (Projections)* Real GDP 3.9% 3.6% 2.9% Consumer Prices 0.7% 0.7% 1.1% Unemployment 11.3% 10.0% 9.1% Debt to GDP 98.4% 95.5% 90.9% General Government Balance 1.9% 1.1% 1.4% General Government Primary Balance * IMF s December 2017 Projections 4.5% 3.5% 3.8%

4 Appendix 1 offers a graphical presentation of the key Cyprus Economy figures.

5 USB BANK PLC Treasury & Correspondent Banking P.O. Box 28510, 2080 Nicosia, Cyprus Telephone The content of the current publication is exclusively informative and does not intend to influence or encourage specific actions. In addition to that, it is by no means binding for USB Bank PLC.