The index of uncertainty for the Cypriot economy exceeded all previous ones

The Uncertainty Index for the Economic Policy in Cyprus in April 2022 surpassed all previous ones, after the Russian attack on Ukraine last February, reaching a value equal to 364,80. The immediately previous highest value occurred shortly after the outbreak of the pandemic COVID-19 in Cyprus, when the price from 175,68 in February 2020, reached 345,27 in April 2020.

This cites a publication by the Center for Economic Research (CEC) of the University of Cyprus, which presents the Economic Policy Uncertainty index (EPU), as a tool that quantifies uncertainty in order to make its analysis easier, to identify its effects on the economy and to be a useful tool for drawing up economic policy.

As mentioned in the publication, so far, for the EPU Index there are data available for almost 30 countries, including 11 European ones, to which Cyprus was recently added, with data produced by the Center for Economic Research of the University of Cyprus. As the JET explains, the EPU Index weighs information on a monthly basis that refers to newspaper articles containing specific keywords, such as articles that include the words economy, uncertainty, and reform or deficit at the same time.

Examining how domestic and international developments affect the value of the EPU Index in Cyprus, the CIO observed its rapid increase in April 2020, when it reached 345,27, after the first cases COVID-19 and the imposition of restrictions in the country, while after the turmoil in the international economy, due to the war in Ukraine, the price increased to 364,80 in April 2022.

Estimates from other countries, including Cyprus, the JIT reports, show that an increase in uncertainty primarily negatively affects investment, while the effects on GDP and employment are also significant, estimated at around 1% and 0,5% respectively. . In Cyprus, specifically, it appears that the effect is negative on the product produced, on investments and on consumption, although the same is not true for the effect on unemployment, where it is noted as positive. It is predicted that the effects will extend beyond one year, although at a decreasing rate.

For the sake of comparison, the publication notes that in March 2013, when the haircut of bank deposits (bail-in) was imposed in the country, the price of the index was 290,97. In December 2012 the EPU value was 240,34, while the average of the index in the period before the global financial crisis (October 1999 – December 2008) was 85,58.

It is also noted that Germany's uncertainty index reaches 785, while its previous highest value was only 598 in December 2021, possibly due to increased cases Covid-19, while it was equal to 498 in March 2020, at the beginning of the pandemic. The European EPU6 Index shows its highest value in 2016 due to the Brexit referendum (433), with the next highest value occurring in March 2022, after Russia's invasion of Ukraine (396).

The KOE points out that the increase in the uncertainty index, both in Cyprus and in other countries, has reached historically high values. He adds, however, that this measurement serves to assess the extent and duration of its effects on GDP, consumption, investment and employment. By extension, as it states, the Index also serves to exercise a more effective economic policy.

Source: KYPE