Cyprus Growth On Track For 2007/2008

by Lorys Charalambous, Tax-News.com, Cyprus

29 June 2007

Despite falling revenues from tourism, Cyprus is expected to notch up growth of 3.9% in the current year and 3.8% in 2008, according to an economic analysis published this week by PricewaterhouseCoopers.

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.”

Finance Minister Michael Sarris said this week that he expects the Cyprus pound to be locked against the euro on July 10 at its parity level against the single currency within the ERM2 ante-room.

"This is something that is not for me to decide ... but all indications are that there are no forces which would push the European Central Bank or the European Commission to make any changes to the existing parity," Sarris told Reuters.

EU Ministers recently agreed that Cyprus will join the euro zone on January 1, 2008 along with Malta, and set 10th July as the date for determination of the conversion rate. The central parity rate of the Cyprus pound in ERM2 is CYP0.585274 to the euro, but it is permitted to fluctuate around that by 2.25% either way. "Since we joined ERM2 there has been very little movement," said Sarris.

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.

Recommended