The new year will be full of challenges for Cyprus. At the starting point is the resurgence of discussions for the settlement of the Cyprus problem, while at European level many speak of the most critical period, as 2017 is a year full of electoral contests and in it can be judged the future of the Union and the resurgence of a new economic crisis.
On the world stage, 2016 was accompanied by several surprises coming mainly from the field of politics and not economics. Thus, Brexit and the election of Trump as President of the United States are two events whose economic consequences will prevail in the coming years.
Developments in the Russo-Ukrainian crisis remain fluid, causing uncertainty, while geopolitical developments in the Eastern Mediterranean region, including the refugee issue, affect our tourism. These are the ten challenges, as recorded, with negative and positive consequences for the economic course of the island.
1. Cyprus issue
The economic implications of resolving the Cyprus issue will be varied. Initially, relevant studies, carried out by the CCCI and other bodies, say that in a period of 20 years from the resolution of the Cyprus problem, the conditions will be created for the GDP of the whole island to double. At the same time, the solution of the Cyprus problem would be a lifeline for the collapsed construction sector, while it would create new perspectives in the tourism sector as well. The increase in demand for loans resulting from investment opportunities would also be supportive of both the banking sector and the real economy. Finally, exploiting the proximity to the large Turkish market would create new prospects. But there will be immediate budget gaps and problems. Thorn, the cost of property. Much will depend on the form of the solution and whether it secures significant financial freedoms. Even not reaching a solution, in the current process and causing tensions, will not be without consequences.
2. Egypt and Turkey
The island's tourism industry has benefited, for another year, from the climate of insecurity ingrained in the minds of visitors to Turkey and Egypt, due to the ongoing terrorist attacks. However, the course of our tourism depends to a large extent on developments in the wider region. There is a general geopolitical instability in the wider region, while the issue of the Refugee remains open.
3. Refugee crisis
The geopolitical developments in the surrounding area of the Eastern Mediterranean, including the refugee issue, are a challenge for the Cypriot economy. Already, the refugee crisis has hit Greece's vital tourism sector. The islands of the North Aegean are experiencing the biggest tourist crisis in their modern history, as a result of the high refugee and migration flows. The bet is that the EU will not be able to find viable solutions. The danger of Cyprus also experiencing large flows of political refugees is always open.
4. Rhythms in the Eurozone
The international economic environment remains highly volatile with ongoing challenges: low growth in the Eurozone, high budget deficits and the debt crisis in the Eurozone. The ECB is concerned about the course of inflation, as the recent price increases are almost solely due to rising oil prices and not to improved economic activity in the Eurozone. At the same time, the long period of low interest rates reflects conditions of sluggish demand and, consequently, uncertainty about the growth dynamics in the Eurozone. However, the biggest challenge for Europe and the ECB is the growing debt of the Member States. The third largest economy in the Eurozone (Italy) has been experiencing a deep crisis for years. Over the last ten years, its GDP has grown by an average of just 0,5%.
At the same time, debt has soared to 132% of GDP.
5. Electoral contests
This year, electoral contests will take place in the Eurozone, with the most important ones in Germany and France. Fears of political unrest are already being expressed, with the rise of far-right movements to power. Typical moves for stability are the expansion of the quantitative easing program, as Mario Draghi and his associates seek to maintain financial stability in a period of turmoil.
6. Brexit
Although no immediate negative consequences have emerged so far, the possibility of Brexit is creating an additional "headache" in the Cypriot tourism and hotel industry and it is estimated that the expected devaluation of the British currency will increase the cost of the tourism package to Cyprus, leading to reducing the purchasing power of British tourists.
1. Cyprus issue
The economic implications of resolving the Cyprus issue will be varied. Initially, relevant studies, carried out by the CCCI and other bodies, say that in a period of 20 years from the resolution of the Cyprus problem, the conditions will be created for the GDP of the whole island to double. At the same time, the solution of the Cyprus problem would be a lifeline for the collapsed construction sector, while it would create new perspectives in the tourism sector as well. The increase in demand for loans resulting from investment opportunities would also be supportive of both the banking sector and the real economy. Finally, exploiting the proximity to the large Turkish market would create new prospects. But there will be immediate budget gaps and problems. Thorn, the cost of property. Much will depend on the form of the solution and whether it secures significant financial freedoms. Even not reaching a solution, in the current process and causing tensions, will not be without consequences.
2. Egypt and Turkey
The island's tourism industry has benefited, for another year, from the climate of insecurity ingrained in the minds of visitors to Turkey and Egypt, due to the ongoing terrorist attacks. However, the course of our tourism depends to a large extent on developments in the wider region. There is a general geopolitical instability in the wider region, while the issue of the Refugee remains open.
3. Refugee crisis
The geopolitical developments in the surrounding area of the Eastern Mediterranean, including the refugee issue, are a challenge for the Cypriot economy. Already, the refugee crisis has hit Greece's vital tourism sector. The islands of the North Aegean are experiencing the biggest tourist crisis in their modern history, as a result of the high refugee and migration flows. The bet is that the EU will not be able to find viable solutions. The danger of Cyprus also experiencing large flows of political refugees is always open.
4. Rhythms in the Eurozone
The international economic environment remains highly volatile with ongoing challenges: low growth in the Eurozone, high budget deficits and the debt crisis in the Eurozone. The ECB is concerned about the course of inflation, as the recent price increases are almost solely due to rising oil prices and not to improved economic activity in the Eurozone. At the same time, the long period of low interest rates reflects conditions of sluggish demand and, consequently, uncertainty about the growth dynamics in the Eurozone. However, the biggest challenge for Europe and the ECB is the growing debt of the Member States. The third largest economy in the Eurozone (Italy) has been experiencing a deep crisis for years. Over the last ten years, its GDP has grown by an average of just 0,5%.
At the same time, debt has soared to 132% of GDP.
5. Electoral contests
This year, electoral contests will take place in the Eurozone, with the most important ones in Germany and France. Fears of political unrest are already being expressed, with the rise of far-right movements to power. Typical moves for stability are the expansion of the quantitative easing program, as Mario Draghi and his associates seek to maintain financial stability in a period of turmoil.
6. Brexit
Although no immediate negative consequences have emerged so far, the possibility of Brexit is creating an additional "headache" in the Cypriot tourism and hotel industry and it is estimated that the expected devaluation of the British currency will increase the cost of the tourism package to Cyprus, leading to reducing the purchasing power of British tourists.
At the same time, Britain is the second most important trading partner of Cyprus and a Brexit would have an adverse effect on trade between the countries, especially if the country fails to reach a good trade agreement with the European Union. Other issues that will be raised will be those related to the British living in Cyprus as well as the relevant regulations in force in the British Bases.
Important issues will also be the absence of Britain in the decision-making processes in the European Union, especially in important issues that affect the economy of Cyprus, where the positions of the two countries are aligned. Finally, there is the issue of the large number of Cypriot students in British universities, who enjoy the lowest tuition fees that apply to both local students and the growing number of Cypriots working or looking for work in Britain. On the other hand, Cyprus can benefit by attracting international companies currently based in Britain.
7. Russian economy
Developments in the Russo-Ukrainian crisis remain fluid, causing uncertainty about the course of the economies of EU member states, including Cyprus, and the Russian economy. At the same time, falling oil prices are affecting the Russian economy as it is estimated that for every $ 1 drop in oil prices, the Russian economy loses about $ 2 billion in revenue.
With the economic crisis in Russia, household incomes are declining, so tourism will be affected by the reduction of per capita expenditure or the reduction of arrivals on our island. In addition, investments in Cyprus may be affected.
Already, Russian companies are leaving and coming to our island as deoffshorization changes the rules of the game. Russian President Vladimir Putin promotes deoffshorization in Russia to boost the country's economy. For deoffshorization there is a different reading, that can be used by Cyprus. Also, the normalization of Russia-Turkey relations may remove part of the Russian tourists to Cyprus.
8. Euro exchange rate
The euro is heading for a 1: 1 exchange rate against the dollar for the first time in 14 years. There are pros and cons to the global economy. The increase in the value of the dollar is negative for companies that either import raw materials from the US or use the dollar for their transactions. On the other hand, it is positive for those who procure raw materials from Europe, because the euro is cheap. European exports can become cheaper and attract foreign consumers.
8. Euro exchange rate
The euro is heading for a 1: 1 exchange rate against the dollar for the first time in 14 years. There are pros and cons to the global economy. The increase in the value of the dollar is negative for companies that either import raw materials from the US or use the dollar for their transactions. On the other hand, it is positive for those who procure raw materials from Europe, because the euro is cheap. European exports can become cheaper and attract foreign consumers.
Demand for European production will increase and new jobs will be created in the export sector. The tourism industry may be the big beneficiary of the devaluation of the euro.
9. Uncertainty in Greece
Uncertainty is bringing gray clouds to the Cypriot economy in Greece. Cyprus is negatively affected by the developments in the Greek economy in various ways, either by the presence of Greek banking branches in Cyprus or by the close bilateral trade relations.
9. Uncertainty in Greece
Uncertainty is bringing gray clouds to the Cypriot economy in Greece. Cyprus is negatively affected by the developments in the Greek economy in various ways, either by the presence of Greek banking branches in Cyprus or by the close bilateral trade relations.
The uncertainty that arises for the continuation of Greece within the Eurozone inevitably affects Cyprus, e.g. the ability of Cyprus to borrow from international markets at reasonable interest rates, but also the expectations of Cypriot households. If the rating closes soon and Greek bonds join the quantitative easing, bonds and stocks will move significantly higher.
10. Will falling oil prices continue?
And while one would reasonably believe that low energy prices could boost the global economy because consumers can benefit from low costs, there is growing evidence that the dramatic collapse in oil prices is sowing , in fact, new "economic storms". The continuing collapse in international oil prices has already had a devastating effect on emerging market economies where oil exports account for a large share of the total export mix - such as Venezuela, while for Russia the fall in oil prices exacerbates an economic crisis. related to both its economic and foreign policy.
At the same time, this whole scenario with the drastic fall of prices is something that complicates our energy planning. Now that we are importers of fuel, lower energy prices are having a beneficial effect on the economy, as they contribute to recovery efforts, aid exports and increase the purchasing power of consumers. However, in our quest to become a hydrocarbon producer, this reduction in prices is causing a lot of problems and making the whole thing difficult. This is because the finances of a project, such as the exploitation, become more difficult.
10. Will falling oil prices continue?
And while one would reasonably believe that low energy prices could boost the global economy because consumers can benefit from low costs, there is growing evidence that the dramatic collapse in oil prices is sowing , in fact, new "economic storms". The continuing collapse in international oil prices has already had a devastating effect on emerging market economies where oil exports account for a large share of the total export mix - such as Venezuela, while for Russia the fall in oil prices exacerbates an economic crisis. related to both its economic and foreign policy.
At the same time, this whole scenario with the drastic fall of prices is something that complicates our energy planning. Now that we are importers of fuel, lower energy prices are having a beneficial effect on the economy, as they contribute to recovery efforts, aid exports and increase the purchasing power of consumers. However, in our quest to become a hydrocarbon producer, this reduction in prices is causing a lot of problems and making the whole thing difficult. This is because the finances of a project, such as the exploitation, become more difficult.
As a result of the crisis in the energy industry, many companies (including the American Noble) are under intense pressure, hence they review their plans, prioritize the projects they carry out, drastically reduce their costs, and move on. sale of assets.
Finally, it remains questionable for now whether the latest rises in oil prices on international markets will continue or the fall will return.
Source: Fileleftheros / Dimitra Landou