Cyprus GDP to suffer 'severe contraction' in 2020, projection shows

The University of Cyprus’ Economics Research Centre has projected that the country’s GDP is set to drop by 6.9% in 2020 under a baseline scenario and by 13.1% under an adverse scenario.

In its economic outlook of May 2020, the University of Cyprus’ Economics Research Centre notes that the Cypriot economy “is projected to suffer a severe contraction in 2020 as a result of the COVID-19 pandemic.”

Real GDP is projected to drop by 6.9% in 2020, under the baseline scenario, it adds.

The projection takes into account the direct impact of restriction measures enforced in Cyprus, thereby reducing the production capacity in sectors of economic activity.

It also factors in the impact of the COVID-19 pandemic as regards reduced capacity utilization due to enforced measures, which will remain in place after the relaxation of the initial restriction measures.

The projection also incorporates the impact of reduced external demand, particularly demand for tourist services.

“Due to the high uncertainty surrounding the outlook, two alternative scenarios are considered, a baseline and an adverse one,” the ERC says.

The scenarios, it explains, differ with respect the adjustment period experienced in each sector, following the complete lifting of lockdown measures in the particular sector and the development of external demand.

During the adjustment period, “sectors are assumed to operate below their normal capacity utilization levels due to supply and demand constraints.”

The baseline scenario assumes an adjustment period of two months and a reduction in external demand for tourist services in Cyprus from April to August, translating into a decrease of 40% in annual tourist arrivals.

At the same time, the retail trade, transportation, accommodation, food service, arts, and entertainment sectors are expected to record the largest output losses, corresponding to around 20%.

Significant output losses are also estimated for construction, manufacturing, as well as administrative and support service activities, the ECR adds.

“In the adverse scenario, which assumes a longer adjustment period and a sharp reduction in external demand, the contraction in real GDP could be as severe as 13.1%,” it says.