On a seasonally adjusted quarter-on-quarter basis, an uptick in gross investment and moderate further expansion of final consumption supported the continued recovery of aggregate output.
IHS perspective | |
Significance | Cypriot economic recovery remains on track as domestic demand regains traction. |
Implications | Consumer sentiment and business confidence is rebuilding now that the painful macroeconomic adjustment and fiscal restructuring have largely been achieved. |
Outlook | IHS expects recovery to continue at a moderate pace in 2016/17, restrained by a difficult picture for some key markets. Should reunification proceed, the medium term would look brighter, however. |
The State Statistical Service has published detailed and statistically and work-calendar-adjusted data on developments in GDP in the third quarter of 2015. This follows a "flash" estimate of the headline figures published in mid-November. The detailed data show that domestic demand drove overall growth in the third quarter. According to seasonally adjusted quarter-on-quarter (q/q) figures, total GDP grew at 0.4% in the third quarter compared with 0.5% in the second quarter and 1.3% in the first quarter of 2015. The third-quarter figure was revised modestly downward from the 0.5% reported in the flash estimate. On a year-on-year (y/y) basis, total GDP grew at 2.2% in the third quarter, adjusted for the number of working days, and 2.3% on an unadjusted basis. Adjusted y/y growth in the second quarter came in at 0.8%, and was a mere 0.1%.in the first quarter
Looking at the q/q growth rates adjusted for seasonality and provided in the first table below, it can be seen that the 0.5% q/q increase in private consumption was nearly offset by a 1.3% decline in public consumption, so that final consumption grew at only 0.1% q/q. In contrast, fixed investment regained some of the ground lost in the previous quarter, expanding at 7.3%. Clearly, the growth in inventory investment was even much greater given that gross capital formation increased at a hefty 19.1%. Net exports were a small but increasing drag on overall GDP compared with the second quarter. On the production side, only industry and services experienced an increase in value added in the third quarter compared with the second quarter. The service sector comprises the greater share of the Cypriot economy (81.9% of total gross value added in 2014) and thus the 0.2% y/y increase in value added in that sector dominated the trend in the total in the third quarter, as the 0.5% increase in industry offset declines in the small agriculture and construction sectors. Alyhough investment activity expanded q/q in the third quarter, it was still down 9.6% y/y that quarter, with a concomitant impact on construction activity.
Cypriot real GDP (chain-linked EUR, bil.) | ||||||||
Q/Q, % change | Y/Y, % change | % | ||||||
Q3 2015 | Q2 2015 | Q3 2015 | Q2 2015 | Year to date | 2014 | 2015F | Nominal share (2014) | |
GDP, total | 0.4 | 0.5 | 2.2 | 0.8 | 1.0 | -2.5 | 1.1 | 100.0 |
Total consumption | 0.1 | 0.4 | 1.4 | 0.6 | 0.8 | -1.5 | N/A | 86.2 |
Private consumption | 0.5 | 0.7 | 2.0 | 1.5 | 0.4 | 0.6 | 1.5 | 70.4 |
Public consumption | -1.3 | -0.8 | -0.9 | -3.2 | -2.4 | 6.6 | -1.4 | 15.8 |
Gross capital formation | 19.1 | -7.9 | -21.4 | 42.7 | 6.2 | -9.0 | N/A | 13.1 |
Fixed investment | 7.3 | -14.5 | -9.6 | 34.0 | 16.4 | 1.5 | 23.8 | 11.5 |
Exports | -4.2 | 3.4 | 3.1 | 0.3 | 1.7 | -0.5 | -1.6 | 60.0 |
Imports | -0.4 | 1.1 | -5.5 | 7.0 | 2.6 | 2.0 | 0.7 | 59.3 |
Source: Statistical Service of Cyprus; seasonally adjusted figures | ||||||||
The y/y changes in the components of GDP paint a somewhat different picture. On that basis, 1.4% growth in final consumption, entirely due to private consumption, combined with 3.4% increase in real exports of goods and services to boost overall GDP by 2.2% on a workday-adjusted basis. Gross capital formation was down sharply y/y in the third quarter, in contrast to a double-digit y/y increase in the second quarter. Exports were up markedly y/y in the third quarter, but imports declined by a much larger percentage and from a very substantially larger absolute value than in the case of exports. Therefore, net exports contributed to overall GDP growth on a y/y basis.
Cypriot real GVA (chain-linked EUR, bil.) | |||||||
Q/Q, % change | Y/Y, % change | ||||||
Q3 2015 | Q2 2015 | Q3 2015 | Q2 2015 | Year to date | 2014 | Nominal share (2014) | |
Gross value added, total | 0.2 | 0.5 | 2.1 | 1.0 | 1.2 | -2.7 | 100.0 |
Agriculture | -1.2 | 7.1 | 1.8 | 4.5 | -0.1 | -6.6 | 2.3 |
Industry | 0.5 | 1.0 | 2.3 | 1.2 | 1.2 | -1.6 | 8.0 |
Manufacturing | -0.4 | 2.6 | 2.6 | 2.5 | 1.3 | -2.0 | 5.0 |
Construction | -1.0 | 1.4 | 2.8 | -13.5 | -10.2 | -22.8 | 2.8 |
All services | 0.2 | 0.1 | 2.1 | 1.4 | 1.7 | -1.7 | 81.9 |
Source: Statistical Service of Cyprus; seasonally adjusted figures | |||||||
The y/y increases in the various producing sectors were consistently positive across the spectrum. The growth was the strongest in the construction sector, followed by manufacturing and agriculture. Services and industry outside manufacturing (mining and quarrying, and electricity and other utilities) brought up the rear in the ranks of the various sectors, but more or less expanded at the same y/y pace as agriculture.
Outlook and implications
IHS estimates that cumulatively in the first three quarters of 2015, GDP grew at 1.0%, as did total gross value added, implying a proportional increase in net taxes and subsidies, which form the gap between GDP and gross value added. We estimate that Cypriot GDP will grow at 1.1% in full-year 2015, following a decline of 2.5% in 2014, corrected for the work calendar. IHS expects the rate of growth to strengthen somewhat in 2016, owing primarily to a further recovery of domestic demand. We project GDP growth at 1.3% in 2016, but expect a more robust recovery in 2017 at 2.8%.