THE CYPRUS ECONOMY CHARTBOOK September Bank of Cyprus Economic Research

Transcription

1 THE CYPRUS ECONOMY CHARTBOOK September 2018 Bank of Cyprus Economic Research

2 Table of contents Economic activity 3 Economic activity by sector 4 Consumer prices 5 Labour market 6 Industry 7 Construction 8 Tourism 9 Property prices 10 Retail sales and car registrations 11 Public finances 12 Banking sector: funding 13 Banking sector: non-performing exposures 14 Current account 15 Macroeconomic forecasts 16 2

3 10Q4 11Q1 11Q2 11Q3 11Q4 12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 14Q1 14Q2 14Q3 14Q4 15Q1 15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 16Q4 17Q1 17Q2 17Q3 17Q4 18Q1 18Q2 10Q4 11Q1 11Q2 11Q3 11Q4 12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 14Q1 14Q2 14Q3 14Q4 15Q1 15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 16Q4 17Q1 17Q2 17Q3 17Q4 18Q1 18Q2 Economic activity continued to rise strongly through Q Real GDP increased by 4,1% and 3,9% y-o-y seasonally adjusted in Q1 and Q2 2018, following a yearly increase of 4,2% in 2017 On an annualised basis, real GDP in Q surpassed its level as at the pre-crisis peak (Q annualised) 7,0 10 Real GDP growth quarterly and annualised 4,8 4,5 4,1 3,9 3,6 4, Real GDP Index annualised: 2011Q2= ,2 101,2 9 98,2 9 96,1 9 93, ,9 90,4 91,7-8 -7,0 8-9,0 8 8 Real GDP annualised % change y-o-y Real GDP Quarterly % change y-o-y Sources: Cyprus Statistical Service; Bank of Cyprus Economic Research 3

4 Economic activity in the first half was driven by tourism, construction, manufacturing and professional services Growth of real GVA in the first half of 2018 was driven by tourism-trade-transport; construction; professional; and manufacturing Contribution to real GVA growth in percent points (under the new methodology there is no additivity of sectors and total GVA) 4,8 0,4 0,7 0,7 4,2 0,4 0,3 0,2 0,7 1,6 0,4 0,1 0,4 0,7 1,3 0,7 1,3 1,4 0,1 0,4-0,1 0,8-0,2 0,6-0,4 0,4-0, H1 - Agriculture & ind. Construction Tourism, trade & trans. Information Financial Real est., arts Professional Public, educ. & health Total GVA Sources: Cyprus Statistical Service; Bank of Cyprus Economic Research 4

5 EU28 EA19 BE BU CZ DK GE ES IE GR SP FR CR IT CY LV LH LU HU MA NE AT PL PT RO SL SK FI SW UK Consumer inflation started to accelerate in 2018 Consumer inflation up 1,1% in Jan-Sep and up 2,7% in the 3-months Jul-Sep (after rising by % average in 2017) starting to accelerate from Q onwards 7, Consumer Price Index: % changes year-on-year 2,7 0, ,4 3,3 2,4-0,4-1,4 CPI % change y-o-y - -1,4-2,1 1,1 2,3 2,5 3,1 1,1 Monthly Index 3-month moving averages 12-month moving averages Inflation in Jan-Sep 2018 was driven higher mainly by housing and transport costs, in turn driven by energy prices 0,1-1,6-0,7 3,2-1,7 0,1 4,6 Consumer inflation by category (% changes year-to-date in Jan-Sep 2018) 0,6 2,4 1,6-0,2 1,1 In the EU Cyprus harmonised inflation remains low in the year to August 4,5 3,5 2,5 1,5 1,8 HICP % change y-o-y in Jan-Aug ,4 Sources: Cyprus Statistical Service; Eurostat; Bank of Cyprus Economic Research 5

6 In the labour market the unemployment rate continued to drop in 2018 amidst rising employment and participation rates The unemployment rate continued to drop in 2018 to 8,1% SA and 7,4% NSA in Q Unemployment rate (%): Seasonally adjusted Vs not-seasonally adjusted 10,8 7,4 9,4 8,1 The drop in the unemployment rate in the first half was driven by an increase in employment against a small labour force increase ,6-1 4,6 17,4-2,8-20,1 0,7-2,3-1,7-4,5-6,8-11,3 Changes year-to-data in 000s NSA 9,1-7,8 1,3 11,4-7,9 3,5 23,6-15,1 8,5 2 19,0 1 9, Unemployment rate NSA (%) Unemployment rate SA (%) Q2 Δ Employed Δ Unemployed Δ Labour force -1 The long term unemployment rate (12 months and over) dropped sharply in the first half of 2018 (NSA) Unemployment rates by duration - NSA 5,4 6,3 1,3 0,6 1,4 3,8 3,6 7,9 1,6 1,7 4,5 11,8 3,5 2,7 5,6 15,9 16,1 6,1 3,4 6,4 2,9 2,7 5,5 5,4 5,1 4,7 Sources: Cyprus Statistical Service; Eurostat; Bank of Cyprus Economic Research 7,7 14,9 6,8 1 5,7 2,2 1 4,5 9,0 2,8 1,6 1, H1 Less 6mo 6-11 months 12mo & over Total Unemployment rate Employment is increasing along with the employment rate and the labour force participation rate but still below pre-crisis 7 4 quarter mov. Averages NSA ,410 0,400 0,400 0,389 64,3 63,8 0, ,3 61,8 0,380 60,3 0,370 0,358 0,360 55,9 0,350 52,9 0,340 0,330 0,320 Employed NSA, million persons Participation rate % Employment rate % 6

7 In industry the long recession from 2008 ended in early 2014 growth turned positive in 2015 and continues positive but at a slowing pace The industrial production index bottomed in April 2014 annualised and has been rising since starting to slow from 2017 onwards Index of Industrial Production: % changes y-o-y 10 Index (Oct. 2008=100 of 12MMA) RHS Monthly 3MMA 12MMA 65, , driven mainly by manufacturing activity and to a lesser extent by the water supply sector ,6 1 Manufacturing 2,3-0,1 Electricity supply Industrial production indices by main sector (% changes y-o-y) 3,1 3,1 2,8 2,8 1,9-1,3 Water Water supply Materials recovery Jan-Jul 9,7 5,5 General Index In manufacturing, activity was fairly broadly distributed with few exceptions like paper products and electronics 5 Manufacturing index and subsectors 47, The various sectors of industrial activity had variable performances but all bottomed in early 2014 Index of Industrial production and main sub-sectors ,6 12,6 7,4 6,3 5,5 7,7 7,4-0,9-4,1 19,7 17,0 8,3 27,1 23,1 15,3 11,2 7,2-9,0 3,9 0,6 1, Total Industry Manufacture Electricity Water 2017 (yearly average) % change 2018 Jan-Jul % change Sources: Cyprus Statistical Service; Bank of Cyprus Economic Research 7

8 Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 2017Q1 2017Q3 2018Q1 In the construction sector economic activity recovered robustly in 2017 and continued to rise in 2018Q1 at a slower pace The Production index in construction rose sharply in 2017 the index dropped to a low in Q on a 4Q moving average basis Production index in construction 36,3 24,9 21, ,1 51, Driven by steep increases in building activity in 2017 leading to a sharp slowdown in Q production indicators (% changes y-o-y) -4,6-18,9-17,8-21,6-24,2-23,5 0,2 13,7 14,2 9,0-26,6-7,0 25,6 21, Q1 8,3 5,1 5,4 3,4 Production Index (2008Q3=100 of 4QMA) Production Index 4QMA (% change y-o-y) Production Index Building Index Civil engineering Output prices started to rise for building activity The volume of building permits is also rising steeply ,5 Construction sector output prices (% changes y-o-y) 3,8 3,1 2,1 0,8-0,6-0,6-0,3-0,3-0,8-1,4-1,3-2,4-2,3-2,6-3,1-5,7-7, Q1 Output prices Building prices Civil enginnering 15 Building permits volume (area in squared metres) Index 100=2004M12 (12M Sums) (RHS) % change 12M sums (y-o-y) % change monthly (y-o-y) Sources: Cyprus Statistical Service; Bank of Cyprus Economic Research 8

9 In Tourism, economic activity continued to expand in 2018 but at a markedly slowing pace Tourist arrivals continued to increase in 2018 at a slowing pace, up 8% in Jan-Aug. Receipts increased by 2,8% in Jan-Jul Tourist arrivals and receipts (% change year-on-year) 19,8 8,7 8,9 14,6 11,9 11, Tourist arrivals in the period increased at a slower pace from traditional sources and arrivals from Russia declined 52,2 Tourist arrivals by country: % change y-o-y 49,1 30,1-4,4 1,5 2,8-2,4-2, Jan-Aug (Rec. Jan-Jul) Total arrivals (% change) Total receipts (% change) The distribution of arrivals has been shifting 6,2 9,2 9,6 12,5 12,5 24,8 22,4 20,6 20,8 24,4 5,8 5,2 4,6 4,5 1 19,7 24,5 22,6 6,6 20,3 4,2 3,9 5,2 4,4 42,7 39,2 36,3 34,3 33,8 2,5 1, Total receipts were 2,4 bn or 13% of GDP in and 2,7 billion in 2017 (13,7% of GDP) 1,5 billion Euro in Jan-Jul ,5 14,6 8,3 9,9 1,9 5,5 5,9 15,6 1 11,5 11,5 11,9 2,1 2,1 5,3 1 2,4 1,9-5, Jan-Aug Total UK Germany Russia Greece Other Europe Total Europe NonEurope 13,7 2,6 10,8 1,5 8,4 5, ,0 7, Jan-Aug UK Germany Russia Greece Other Europe Non-Europe Jan-Jul Tourist receipts in billion euro % of GDP (RHS) Sources: Cyprus Statistical Service; Eurostat; Bank of Cyprus Economic Research 9

10 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 Residential property prices bottomed in the first half of 2016 and have been rising in 2017 and 2018 CBC Residential property prices declined by a cumulative 32% from peak to trough, and have risen steadily through ,8 73,2 1,4 1,5 1,8 1, Residential property prices are positively correlated with real GDP as recovery continues prices can be expected to rise Residential property prices and real GDP in 4Q moving averages Index 2010Q1=100 Residential Property Index % change y-o-y Residential property prices % change Real GDP % changes Whole country average RICS valuations entered positive territory in 2016 and accelerated into RICS Valuations whole country averages: % change year-on-year Country-wide RICS valuations bottomed in 2015 and have been rising through 2016 and ,0 107, Country-wide RICS valuations averages as at end 2017Q4 (2015Q4=100) 107,8 105,3 106,4 113,4 Apartments Houses Retail Warehouse Office Apartments Houses Retail Warehouse Office Sources: Cyprus Statistical Service; RICS; Bank of Cyprus Economic Research 10

11 On the demand side of the economy, volumes of retail trade continued to increase and vehicle registrations are also up The volume index of retail trade peaked in 2008 on a 12 month basis and dropped 21,8% to early 2014, rising thence Total Retail Sales except motor vehicles 78,4 Index 2008=100 % change y-o-y 12MMA % change y-o-y monthly , In Jan-Jul 2018 retail sales in volume excluding vehicles were up 6,7% and were broadly driven except for a decline in fuel Retail sales by category: % change year-on-year 7,8 6,2 6,7 6,7 Retail Sales total except motor vehicles Total except autom. Fuel 5,9 7,1 Food products 7,5 8,6 Non-Food exc. Autom. Fuel 5,4 Clothing & Footwear Jan-Jul 15,2 12,5 Electrical & Furniture 7,1 8,4 Computer eq. 2,8-1,7 Automotive fuel Regarding vehicle registration, after a 73% drop from their peak in late 2008 to early 2014, they started to rebound sharply Total car registrations: % change year-on-year 28,5 Index 100=Oct.2008 of 12 M M.A. (RHS) 3M M.A. 12M M.A. Sources: Cyprus Statistical Service; Bank of Cyprus Economic Research 69, rising 31% in 2016 and 29% in Registrations were up 17% in Jan-Aug 2018 y-o-y Vehicle registrations: % change y-o-y Total vehicles Total new Total used Private saloons Private new Private used Jan-Aug

12 In public finances the budget surplus increased sharply driven by increases in revenues The budget rose to a surplus of 1,8% of GDP in 2017 driven by a sizeable primary surplus at 5% of GDP 9,5 7,5 5,5 3,5 1,5 - -2,5-4,5-6,5 2,3-3,1-2,8-5,4 2,1-4,7-3,5-2,4-5,7-5,6 Budget balance in % of GDP 3,1 3,4-1,7-5,1 3,2 3,2 2,8-0,4-0,3 2,7 2,8 3,1 4,4 4, E Primary Interest Budget 0,3 1,8 2,6 2,1 2, , There was a sizable budget surplus in the first half of 2018 Budget balance year-to-date (million euro) Expenditures dropped by 15,8% and revenues only by 3,6% between 2011Q4 and 2015Q4 and revenues are up sharply since Government expenditures and revenues index: 100=2011Q4 of 4 Q moving sums 96,4 86,3 110,3 88,2 As a result total Gross Debt may have peaked at the end of 2015 relative to GDP and started to drop in ,5 130 Gross debt as the end of the period 18,6 18,9 19,1 19,4 18, ,5 107,4 107, , , , ,6 79, , ,3 53, , E 0 Gov. Expenditure index Gov. Revenue index Sources: Cyprus Statistical Service; Bank of Cyprus Economic Research Gross debt as % of GDP Gross debt in billion euro RHS) 12

13 In the banking sector funding conditions continue to improve driven by stable rising deposits and by loan deleveraging Total deposits remained continued to rise in 2018 while loans dropped further to August 72,7 70, , ,8 46,1 4 55, ,4 49,0 49,4 Gross loans/deposits ratio % (RHS) Total Loans (bil. Euro) Total deposits (bil. Euro) ,1 45, Total deposits increased 3,2% in the year to August, while loans dropped by 1% as deleveraging continues ,9 11,5 1,2 5, ,2 Total loans and deposits: % changes year-to-data -1,8-3,3-0,3 6,6-11,8 0,8-7,1 3, Aug Deposits Loans The increase in total deposits were attributable to an increase in government deposits related with the Cyprus Cooperative Bank 5 Total deposits by category in billion euro at end period 7,3 4 9,2 8,4 3,1 11,9 10,4 3,2 3,2 1,1 4,2 3 2,7 2 23,1 23,6 23,1 22,3 22,4 1 7,4 8,3 8,7 5,3 6,2 4,2 3,8 5,1 4,8 4, August Financial cos Non-financial Households Government Other EA Non-res. RoW Sources: Central Bank of Cyprus; Bank of Cyprus Economic Research Loan deleveraging is broad affecting every category of lending 8,8 8,1 3,1 3,5 10,2 9,9 11,7 11,7 4,7 6,8 7,3 2,7 9,3 6,1 2,2 11,5 11,1 3,4 3,6 Loans by category in billion euro 22,1 22,1 20,2 18,9 17, April Non-financial cos Financial cos Housing Other Household Govrnment Other EA Non-res RoW 8,7 13 5,6 2,3 10,8 1,2

14 Non-Performing Exposures remain on a declining path following an IFRS9 related uptick in Jan-Feb 2018 NPEs peaked in Feb at 28,9 bn euro and dropped by 30% to 20,3 bn euro in May 2018 with a rise in Jan-Feb IFRS9-related ,9 NPEs peaked in Feb and dropped 30% to May ,5 7 21,8 22,5 20, Total NPE ratio to gross loans was 41,4% in May 2018 and the ratio of past due 90 days plus was 32,6% 41,4 Non-Performing Exposures: selected ratios as at ,6 2 41,3 49,2 62,4 NPEs in billion euro NPE Index 100=2015Feb The NPEs of Non-Financial Companies (NFCs) account for the bulk of the decline in total NPEs 3 28,9 27, ,2 24,2 0,8 2 20,9 20,3 0, ,7 0, , ,3 4,7 1,6 1,2 1 9,4 9,2 1 8,4 7, SMEs Other NFCs HHs Other Total Sources: Central Bank of Cyprus; Bank of Cyprus Economic Research Ratio of NPEs to gross loans Ratio of exposures past due 90 days to gross loans Ratio of total restructured facilities to gross loans Ratio of restructured facilities NPEs, to total NPEs Ratio of total impairment to total NPEs Deleveraging and restructuring are main drivers and as NPEs decline provisions provide for a bigger buffer. 6 28,9 60,2 27,3 52,4 24,2 49,2 48,6 49,0 20,9 20,3 20,3 14 Ratio of total impairment to exposures past due 90 days In billion euro 9,9 9,6 10,91 9,910,1 8,6 9,9 8,4 1 8, Gross Loans NPEs of which: restructured Provisions

15 In the current account there has been significant improvement when Special Purpose Entities are excluded The current account deficit excluding Special Purpose Entities (SPEs), narrowed to 1,5% of GDP in 2017 from 5,8% in ,7-5,8-4,9-4,3 - -7, Current account bal. excl. SPEs (% of GDP) -1,5-1,5-0,2 Current account balance (% of GDP) The current account deficit widened in 2017 compared with 2016 due to a sharp deterioration of the goods balance Excl. SPEs Composition of the current account balance in % of GDP 1 15,9 18,7 19,5-17,0-15, ,8-5,8-3,7-1,1-2,8-0,2-3, Goods Services Income Current account -1, ,0 The services balance was heavily influenced by the travel account The services balance is also influenced by SPEs Services balance by category including SPEs 1,3 3,6 4,3 8,6 7,9 7,1 7, The influence of SPEs on the services balance 20,4 1 18,7 17,5 15,9 1 21,6 19, ,5 7,2 7,8 8,5 5,3 4,8 4,5 4,1-2,5-2,4-1,3-1,7-1,3-1,2 - -0, Transport Travel 2015 Financial Telecoms 2016 Other business 2017 Other 1 1,6 1,8 2, Total services bal. (% GDP) Net services bal. (% GDP) SPEs (% GDP) Sources: Central Bank of Cyprus; Bank of Cyprus Economic Research 15

16 Macroeconomic Indicators and Forecasts F 2019F 2020F 2021F Real GDP (% change) 4,8 4,2 3,8 3,4 3,2 2,8 Nominal GDP (billion Euro) 18,5 19,6 20,6 21,6 22,7 23,8 Nominal GDP (% change) 4,2 5,8 5,2 5,1 4,7 GDP Deflator (% change) -0,6 1,5 1,4 1,6 1,9 1,9 Consumer Price Index (% change) -1,4 1,5 1,9 1,8 Employment (% change) 2,5 3,1 5,6 2,1 1,2 1,1 Unemployment rate (%) 1 11,1 7,6 6,8 6,3 Interest payments (% of GDP) 3,3 3,1 2,7 2,9 2,6 2,5 Government budget (% of GDP) 0,3 1,8 2,1 1,6 1,6 Primary balance (% of GDP) 3,6 4,9 4,8 4,9 4,2 4,1 Gross public debt (billion euro) 19,4 18,7 21,5 21,1 20,8 2 Gross public debt (% of GDP) 10 95,7 104,4 97,8 91,6 86,4 Sources: Cyprus Statistical Service; Bank of Cyprus Economic Research 16

17 THE CYPRUS ECONOMY CHARTBOOK September 2018 Bank of Cyprus Economic Research General Disclaimer This Cyprus Economic Chartbook ( Chartbook ) is made available to BOC s customers and prospective customers without any cost. Its content is in its nature illustrative and makes neither explicitly nor implicitly an offer of any sort. Thus, this Chartbook does not contain or cannot result in any contractual or non-contractual obligation or liability of or legal advice by BOC, any of its branches or affiliates or employees or representatives. It is understood that in no event will BOC be liable for any loss or damage including, without limitation, indirect loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use or inability to use this Chartbook or its content. Note that this Chartbook is for information purposes only and its content may be subject to change at any time without prior notice. BOC makes no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability or suitability with respect to the information included in this Chartbook or the related graphics/charts and expressly disclaims liability with respect hereto. Any reliance you place on such information is therefore strictly at your own risk. Before making any decision of a financial nature, BOC highly recommends you to seek independent professional advice. All copyright, trademarks and all other intellectual property rights in this Chartbook and its content are owned by BOC. No information contained therein may be reproduced, transmitted, displayed, distributed, published or otherwise used for commercial purposes without the prior written consent of BOC.