Cyprus: A Faster Than Expected Recovery Underway

This commentary analyses the recent economic performance and outlook of Cyprus (currently rated by DBRS Morningstar BBB (low), Positive trend). Cyprus is recovering faster than expected and real GDP is on track to reach pre-pandemic levels by Q4 2021. Although not exempt from hurdles and challenges, DBRS Morningstar anticipates that Cyprus's favourable medium-term growth prospects will facilitate the repair of its public accounts and the further cleaning up of its banking system.

Key highlights include:
-- Despite the importance of tourism, the Cypriot economy has proven fairly resilient in the face of the Coronavirus Disease (COVID-19) shock drawing on fiscal space for support measures. Had Cyprus not made the ambitious adjustment since the global financial crisis, the situation now could be quite different.
-- DBRS Morningstar considers Cyprus's medium-term growth prospects to be strong and to support the government's debt reduction efforts.
-- Successful implementation of the investments and reforms envisaged in the Recovery and Resilience Plan (RRP) will be important to generate long-lasting enhancements to the Cypriot model and to lift potential growth.

“Cyprus is recovering faster than expected and conditions are set for sustained growth in the medium-term, although subject to evolution of the pandemic and the implementation risks of the EU funds.” said Javier Rouillet, Vice President at DBRS Morningstar. “We expect this positive macroeconomic backdrop should facilitate a continued improvement in Cyprus’s public finances and help banks to continue their balance sheet repair efforts.” added Javier Rouillet.