Cyprus to maintain robust growth in 2007-2008

PricewaterhouseCoopers’ latest economic analysis points to continued strength in the Cypriot economy during 2007 and 2008. The economy is expected to grow by 3.9% in 2007 and 3.8% in 2008, easily outperforming the Euroland average economic growth rates in both years.

Once again, the contribution of the domestic economy is expected to outweigh that of the export sector in both 2007 and 2008.

The PwC report argues that domestic demand is likely to continue to be the main driver of overall growth despite investment growth moderating somewhat in 2007. Consumer spending in particular is likely to perform well over the next two years owing to relatively low interest rates and favourable labour market conditions.

On the external sector, the report finds that Cyprus’ exports performance is likely to improve slightly in 2007, despite a slightly slowing pace of growth  in Cyprus’ main export markets, namely the UK and Euroland.

The report suggests the Euroland economy achieved a healthy pace of growth in 2006, growing by its fastest pace since 2001. However, some moderation is anticipated in 2007 owing to the lagged effects of past European Central Bank interest rate rises, a further possible appreciation of the euro and tighter fiscal policy in a number of member states. The pace of economic growth in the Euroland is expected to average a reasonable 2.5% in 2007 before slowing to 2.2% in 2008.

Euroland inflation is expected to average 1.9% in 2007 and the ECB is likely to raise interest rates by a further 25-50 basis points before the end of the year, in order to contain price pressures and anchor inflation expectations.

Yael Selfin, Senior Economist at PricewaterhouseCoopers, said that, “the economic outlook for the Cypriot economy remains positive and the goal of adopting the euro in 2008 is looking increasingly attainable. However, inflation deserves vigilance over the rest of the year, given the upside risks from robust domestic demand, excess credit and the possibility of further oil price rises.”

Source: Financial Mirror

Orams case goes to European Court of Justice

Following a ruling by the High Court in London last year, which was hailed as a victory for Linda and David Orams, the high profile Apostolides case has now been sent to the European Court of Justice.

The London judgment overturned a ruling from the Nicosia court in October 2004, which found for the Greek Cypriot former owner of the land (Meletios Apostolides), and ordered the Orams to pay compensation to Apostolides, to demolish their £160,000 villa and to return the land to him (which would have resulted in them losing their own home in the UK). Mr Justice Jack ruled that Article 10 of the EU Treaty of Accession of Cyprus to the EU meant that the Nicosia judgment was unenforceable in England and, furthermore, that the jurisdiction of the Republic of Cyprus does not extend to property located in the TRNC (in "de facto control" of the north).

While the judge gave Apostolides permission to appeal, he also ordered him to pay 75% of the Orams' £863,000 costs. London's Court of Appeal said that the European Court of Justice in Luxembourg must give guidance on the case before the UK can decide whether to enforce a demolition order, according to Bloomberg.

Nicholas Phillips, the UK's most senior judge, was quoted by the analyst as saying: “The principle issues of this case are of importance to some 14,000 people who claim to own homes in Northern Cyprus, and also to Greek Cypriots who lay rival claims to the ownership of those houses.”

TRNC solution ‘recognised’

While the so-called Turkish Republic of Northern Cyprus is not recognized by the EU, recent reports suggest that its solution to land dispute, the Immovable Property Commission (IPC), is about to be officially accepted by the European Court of Human Rights (ECHR). Hasan Erçakıca, a spokesman for the Turkish Cypriot president told the Turkish Daily News (TDN) that a landmark ruling, whereby an exchange formula was used to deal with Greek Cypriot complaint, “could enhance the international legitimacy of the property commission in the north”. He added that property disputes can only be settled “not through courts but through negotiations between the parties involved”.

Thus far, the commission is reported to have dealt with property claims ‘through compensation and restitution’ but Greek Cypriots have always opposed the exchange of land – a solution outlined in the rejected Annan plan. This plan has been updated to include the payment of a small proportion of the compensation in addition to the exchange of land.

With Ankara now awaiting the ECHR’s official recognition of this solution, TDN highlights a report in Greek Cypriot daily Politis which claims that the ECHR has sent letters to Turkey, a Greek Cypriot and the Greek Cypriot administration supporting the exchange formula solution; with official approval expected in ‘upcoming days’.

Source: OPP

Cyprus property market ‘booming’

While some investors are concerned about Spain and other look to exotic and uncharted territory, those looking to invest in property on the island of Cyprus continue to do so in a booming market.

This year is certainly on course to be another property boom year. Cypriot newspaper the Financial Mirror has stated that 2007 is on course to see 20 per cent property value appreciation. Part of the trend is due to a rush to beat the imposition of a new 15 per cent VAT land tax on January 1st 2008, but the tend is a longer term one and some might observe that the imposition of a land tax indicates government recognition of this, suggesting it believes it can pick up some useful revenue without doing undue damage to the market.

Already, the paper notes, the government is making good money out of the property boom, with capital gains tax receipts amounting to the equivalent of $173 million in the first five months of 2007, compared with $62 in the same period in 2006 (Cyprus adopts the Euro in the new year).

However, the paper states, Solomon Kourouklides, Chairman of the Cyprus Real Estate Agents Association believes the increase is also due to high amounts of property buying from overseas investors in coastal areas.

Some might suggest that there is a negative element for native Cypriots, in which locals are priced out of the market by overseas speculators. What in fact is happening, according to an article in the Cyprus Mail at the weekend, is that the sector is helping the economy at a time when other aspects that involve foreigners - such as tourism - are in decline. Moreover, it points out, mortgage demand is rising and it is the capital Nicosia, not coastal towns such as Limassol and Paphos, which are seeing the greatest demand of all.

As the paper puts it: "This is good news, making the market less susceptible to the whims of foreign buyers, who can abandon Cyprus as easily as they came. It also means that local buyers - including first-time buyers - are finding a way to lock into the property ladder, securing a stake in a sector of the economy that is expected to see continued steady growth." In short, investors can certainly feel no guilt about buying into the market, or fear being resented for doing so.

Instead, the paper adds, the amendments that actually need to be made to ensure the market stays healthy are things like faster issuing of title deeds and better redress for builders if work is not up to standard.

Notwithstanding those concerns - not unique to any one country - Cyprus remains a country with further growth potential. Part of that lies in the continuing attraction of the country for its climate, history and culture, while the forthcoming adoption of the Euro could provide the greatest boost, by providing the kind of stability that will encourage investment and establishing the country in the eyes of Europe as part of the social, political and economic mainstream.

Source: Assetz  

Eurozone “very significant” for Cyprus, says Papadopoulos

President Tassos Papadopoulos has described as “very significant” the entry into the eurozone on January 1, 2008, saying that this confirms that the government’s fiscal policy has been a success and the local economy sound enough to meet EU criteria for the euro area.

“This is an important landmark for Cyprus and I believe that once we adopt the euro, prices will be rounded up downwards as opposed to upwards,” he said on departure for the European Council meeting which will deal with Cyprus’ and Malta’s accession to the euro area.

He reiterated that this was achieved with the concerted effort of all the social partners, adding that government services will monitor the change of currency to ensure that there is no exploitation of prices.

Papadopoulos recalled that the Cyprus pound will be locked to the euro in early July and the exchange rate will not be known before that.

Referring to the EU summit that starts Thursday, he said this was “very important” as it will review reforms in the European Treaties.

“We hope that it will be possible to reach an agreement that will facilitate the smoother running of the EU, which so far has been governed by the provisions of the Treaty of Nice,” he said.

Papadopoulos also said that the current trend among the 27 members seems to indicate that existing Treaties are set to be promoted but no new treaty is likely to be approved.

“There are several differences and everybody understands that if the current German EU presidency does not succeed in clinching such an agreement, then things will be more difficult in the future,” he concluded.

Earlier Wednesday the European Parliament approved by an overwhelming majority of 585 votes in favour, 14 against and 90 abstentions, a report by a German Euro MP which gives the green light to Cyprus’ entry into the euro area.

Speaking during the debate at the Parliament, German Minister of State for Europe Gunter Gloser and EU Commissioner for Economic and Monetary Affairs Joaquin Almunia welcomed Cyprus and Malta, saying both countries meet the criteria set out by the Union. 

Source: Financial Mirror

EIU expects 3.4% growth for Cyprus in 2007

The Economist Intelligence Unit (EIU) maintained its Cyprus GDP growth forecast at 3.4% and 3.6% for 2007 and 2008 respectively, according to the Sharelink Securities & Financial Services update.

Low growth in the tourism sector will be partly offset by continued strength in exports of business services such as accounting. Investment growth is likely to remain strong as a result of ongoing works to upgrade the two airports, while work to construct new marinas may get under way in 2008, if the government can speed up the tender round.

Government consumption growth is also expected to accelerate, driven by the forthcoming presidential election in February 2008. According to EIU, private consumption growth will be supported by continued strong credit expansion and a fall in commercial (as opposed to official) lending rates from 2008, as local banks respond to competition from other Euro area banks. Credit growth will also help to maintain demand in the construction and retail sectors. The British agency points out that the main risk to this forecast is a sudden fall in credit growth; However it says, this seems unlikely, given that banks are enjoying strong profit growth, commercial interest rates are expected to fall further, and overall lending as a share of GDP is probably lower than in countries such as the UK and Spain.

EIU’s central forecast about interest rates is that the European Central Bank (ECB) will raise rates twice more before the cycle comes to an end at 4.25%. Rises above 4.25% would only occur if growth were to continue as strong as in 2006 and show no sign of slowing by the end of 2007. However, EIU says, Cypriot commercial lending rates, which are higher than in the Euro area, should continue to fall from 2008. The final convergence of Cyprus and ECB rates will happen in the last two months before the adoption of the Euro.

The EIU says that the Cyprus pound is already approaching the central parity rate. Under the planned schedule the exchange rate with the Euro will be locked in July 2007; mandatory dual pricing in euros and Cyprus pounds will run from September 2007 until June 2008; and the Cyprus pound will cease to be legal tender in February 2008. According to EIU the Euro is forecast to strengthen against both the US dollar and sterling on average in 2007-08.

Source: The Financial Mirror