Vaccinations have turned into the main economic tool for the management of the coronavirus crisis and the prospects for recovery, Minister of Finance Constantinos Petrides said, stating that he foresees a strong recovery in 2021 ranging from 3.5% to 4.5% of GDP, depending on the development of the pandemic.
Addressing a virtual conference co-hosted by the Chamber of Commerce and Industry of Nicosia and the European Investment Bank (EIB), Petrides said “it is the first time in modern times and at least in our lifetime that the management and evolution of our economy depends so much on the success of a vaccination program. Vaccination has turned into the main economic tool for managing this crisis, the prospects for recovery.”
But, Petrides said that in 2021 “we do expect a strong rebound of about 3.5% and 4.5% depending on the evolution of the pandemic and the great uncertainty which is still out there.”
The conference touched upon the findings of the EIB Investment Survey for 2020 which showed that investments by Cypriot firms declined by 36% in the second quarter, compared with the pre-crisis levels, while more than half of Cypriot firms stated that the pandemic affected their investment plans, compared with the EU average of 40%.
Petrides said that although companies may have delayed investments in 2020 due to the pandemic, big infrastructure projects are in the pipeline, such as the integrated casino resort and marina of Ayia Napa and Larnaca, which will diversify and enrich Cyprus tourist product.
“Perhaps there were some delays due to the pandemic but I am very optimistic, the implementation of all these projects will give a further boost to the economy and are not factored in our current projections,” he said.
Petrides also said that the EU Recovery and Resilience Facility funds earmarked for Cyprus, totalling €1 billion, will be key to boosting the resilience of the Cyprus economy.
On his part, Central Bank Governor Constantinos Herodotou pointed out that the pandemic crisis poses an opportunity to reflect on Cyprus’ growth model and address its vulnerabilities highlighted by the pandemic and to focus on green transition and digitalisation.
Herodotou said that despite the encouraging signals due to vaccine rollout, 2021 still faces significant uncertainty and added that “the crisis provides an opportunity to reflect, reimagine and reset our economy by promoting the right conditions, greener and more sustainable economy.”
He underscored the importance of EIB financing as Cypriot corporates may face problems in accessing financing, because the still high NPL rate “makes the banks risk-averse, because of the possibility of more NPLs impacting their balance sheets.”
Herodotou also highlighted that frequent changes in the foreclosure legislative framework, combined with the slow judicial system, and may suggest a comparative high cost of resolving loan defaults.
“Our current growth model has vulnerabilities, that were highlighted by the global pandemic crisis and these vulnerabilities pose high risks for Cyprus economy, particularly tourism, reputational and geopolitical challenges or legislative uncertainty” he said.
“These vulnerabilities could be exacerbated if we do not accelerate the adoption of advanced, especially digital and green technologies,” he added.
Lilyana Pavlova, the EIB Vice President, stressed that following an estimated contraction of 5.8% in 2020 due to Covid, the Cypriot economy is envisaged to recover partially by 3.2% of GDP in 2021, with recovery to pick up in the second half as vaccinations pick up and cases drop.
She noted that growth will be driven mainly by domestic demand as fiscal measures were extended in 2021.
President of the Cyprus Chamber of Commerce and Industry, Christodoulos Angastiniotis turned to the survey’s finding, suggesting that 44% of Cypriot companies were planning to increase investments in 2020 but the Covid pandemic has overturned their plans, adding that more disappointing is the fact that in 2021 only 18% of the responding firms plan to increase their investment, while 37% plan to decrease them.
“Priorities have certainly changed, as the main concern of the business sector now is how to overcome their liquidity problems and secure their survival. This is why the Chamber is pressing hard for the introduction of loans with the provision government guaranties” he said, adding that the upside is that the much needed digital transformation has gained momentum.