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Cyprus Business Forecast Report Q2 2010
Management Report
Published: February 2010
Pages: For full details, please email keithw@cmsinfo.com
Tables: For full details, please email keithw@cmsinfo.com
From: GBP 480.00 Buy Now!
Research from: Business Monitor International
Sector: Regional Markets
The window of opportunity to reach a settlement on reunification will soon close, as elections inthe Turkish Cypriot North are likely to bring hardliner Dervis Eroglu, whose Party of National Unityfavours partition, to the negotiating table. Incumbent leaders Dimitris Christofias (Greek Cypriot)and Mehmet Ali Talat (Turkish Cypriot) have stepped up the intensity of settlement talks again,and while there is always hope when communication channels are open, it seems unlikely that anagreement can be reached before campaigning begins in the North. We expect these time pressuresand political constraints on both leaders to prevent a breakthrough before April, with thechance of finding a resolution after that much less likely. However, as we have stated previously,the status quo does not hold significant downside risks, especially in the south, which alreadyenjoys EU membership.
L atest opinion polls suggest that Dervis Eroglu will win the presidential election in Northern Cyprusin April. The nationalist party leader and prime minister has support running at 51%, comparedwith incumbent Talat’s 29%. Even allowing for statistical discrepancy and the 20% of voters stillundecided, this seems like an insurmountable challenge for Talat, unless a successful referendumon the Cyprus problem can be arranged before April - an extremely unlikely scenario, in our view.Under Eroglu, we would expect Northern Cyprus to align itself more closely with Turkey, whichincreases the risks of isolation from the international community.
Public finances have fallen into deficit in 2009, following two successive years of budget surpluses,as revenues tumble on declining business activity and government spending rises to support theeconomy. We forecast a budget deficit of 4.2% of GDP in 2009, rising to 4.6% of GDP in 2010 asunemployment remains high and growth sluggish. New measures to plug the budget gap will havesome impact going forward, though we expect the fiscal shortfall to remain above 3% until 2012at the earliest.
Cyprus continues to hold a status as a regional financial hub, due to its strong rule of law, eurozonemembership and extremely low corporate tax rate (10%). However, investment activity inCyprus will continue to be weighed down by the island’s political problems and economic imbalances,which are a major deterrent for investors. In addition, the traditionally important sector oftourism is suffering from a decline in competitiveness relative to other popular destinations, andfaces another very difficult year in 2010. The banking sector - which has been developing rapidlyin recent years - has weathered the financial storm so far, but will continue to come under strainfrom external risks, particular from neighbouring Greece.
Public finances have fallen into deficit in 2009, following two successive years of budget surpluses,as revenues tumble on declining business activity and government spending rises to support theeconomy. We forecast a budget deficit of 4.2% of GDP in 2009, rising to 4.6% of GDP in 2010 asunemployment remains high and growth sluggish. New measures to plug the budget gap will havesome impact going forward, though we expect the fiscal shortfall to remain above 3% until 2012at the earliest.
Cyprus continues to hold a status as a regional financial hub, due to its strong rule of law, eurozonemembership and extremely low corporate tax rate (10%). However, investment activity inCyprus will continue to be weighed down by the island’s political problems and economic imbalances,which are a major deterrent for investors. In addition, the traditionally important sector oftourism is suffering from a decline in competitiveness relative to other popular destinations, andfaces another very difficult year in 2010. The banking sector - which has been developing rapidlyin recent years - has weathered the financial storm so far, but will continue to come under strainfrom external risks, particular from neighbouring Greece.