Economic Growth is Projected at 3.8% in 2018 and 3.6% 2019

29/05/2018

Following the recent DBRS sovereign rating upgrade on the Republic of Cyprus, DBRS notes that “The upgrade is driven by the reduction in Cypriot banks’ non-performing loans (NPLs) and Cyprus’s better-than-expected fiscal performance. The banking system’s stock of NPLs fell by 14% last year. Also in 2017, the fiscal surplus came in at 1.8% of GDP, above target. A larger fiscal surplus, together with strong growth and early debt repayments, led to a significant fall in Cyprus’s government debt-to-GDP ratio from 106.6% in 2016 to 97.5% in 2017.

The Positive trend reflects DBRS’s view that Cyprus’s solid economic and fiscal performances are likely to be sustained, contributing to the further decline in the government debt ratio after a rise in 2018. Economic growth is projected at 3.8% in 2018 and 3.6% 2019. The forecast for the primary surplus is above 4% over the next two years, among the highest in the European Union. NPLs remain very high, but DBRS expects NPLs to continue to fall, driven by measures already in place, a policy strategy recently presented, and improving economic conditions.

An upgrade in the ratings would come from Cyprus’s sustained healthy economic growth and a sound fiscal position that would support the reduction of public debt over time. Moreover, Cyprus’s ability to significantly reduce vulnerabilities in the private sector, including a material reduction of NPLs, would be positive for the ratings. However, a period of significantly weak growth, combined with large fiscal imbalances, could lead to a change in the trend back to Stable. A reversal of the downward trajectory in NPLs could also be negative.”