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
