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The Cyprus economy six months on: Turning the corner or worse to come?
By Fiona Mullen
Director, Sapienta Economics Ltd
Partner, Strata Insight energy advisory [email protected]
www.sapientaeconomics.com
www.stratainsight.com
+357 99 338 224
First, the bad news…
Bank of Cyprus still vulnerable
-18,000
-16,000
-14,000
-12,000
-10,000
-8,000
-6,000
-4,000
-2,000
0
2,000
Jan-12 Jul-13 of which BOC estimate
1,304
-16,541
-9,000
Funding gap (deposits minus loans, EUR bn)
GDP worst since 1974 (-16% & -19%)
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
2011 2012 2013 2014 2015 2016
Real GDP growth forecasts (% change)
European Commission, Sep 2013 Sapienta Economics, Aug 2013
Debt more than doubles (x2.5)
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
128.4
48.9
126.9
Debt/GDP ratio (%)
Sapienta Economics, Aug 13 European Commission, Sep 2013
Unprecedented unemployment
0.0
5.0
10.0
15.0
20.0
25.0
30.0
2001 2003 2005* 2007 2009 2011 2013 2015 2017
4.7
17.2
25.1
Unemployment rate % (break in series 2005)
The lost generation
0
5
10
15
20
25
30
35
40
2012 Q1 2013 Q1
26.7
37.5
Youth unemployment (% of 15-25s)
Gas export date too optimistic?
• Government expects first gas exports: 2020
• Sapienta expects first gas exports: 2028
But there is some better news…
Five surprises on the upside
• Budget deficit
• Pace of GDP decline
• Capital flight
• Liquidity stress in the banking system
• Exports of goods (also shipping?)
H1 budget deficit cut in half
-450
-400
-350
-300
-250
-200
-150
-100
-50
0
2012 H1 2013 H1
-440.8
-202.9
Budget deficit, Jan-Jun (EUR m)
GDP decline less than feared
• Real GDP declined -5.3% in first half of 2013
• Troika says -8.7% whole year
• Means -12% in H2!
• Q3 wasn’t that much worse than Q2
• So mathematically nigh impossible
My forecasts have been improving
-15.0
-6.1
-16.0
-14.0
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
2011 2012 2013 2014 2015 2016
Sapienta Real GDP growth forecasts (real % change)
Apr
May
Jun
Jul
Aug
Sep?
Capital flight (ex haircuts) is easing
-3,752
-956
-4,000
-3,500
-3,000
-2,500
-2,000
-1,500
-1,000
-500
0
Jan-13 Feb Mar Apr May Jun Jul
Drop in deposits (net of haircuts) EUR m
ELA is falling
11,400
9,850
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13
Emergency Liquidity Assistance (EUR m)
Exports of goods are booming
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2
Nominal growth in exports of goods y/y % change
Shipping up?
• Turnover up 54% y/y in Q1
• But only 3% y/y in Q2
Turning the corner or worse to come?
• Positive view:
• Unemp. rise = few barriers to adjustment
• Traditionally resilient economy?
• Negative view:
• The worst is yet to come?
• Ireland took 9 quarters to reach bottom
Now for the shameless plug…
• You need
• Sapienta Economics for :
Macroeconomy, fiscal, political stability
• Strata Insight for:
Hard to get info on govt’s energy policy
What’s going on behind the news
Thank you for listening
Fiona Mullen
Director, Sapienta Economics Ltd
Partner, Strata Insight energy advisory [email protected]
www.sapientaeconomics.com
www.stratainsight.com
+357 99 338 224