the cyprus economy after the memorandum...• the recovery gained momentum in 2016 • … it is...
TRANSCRIPT
THE CYPRUS ECONOMY
AFTER THE MEMORANDUM 2nd Wealth Management Forum
12 January 2017
Yiannis Tirkides,
Bank of Cyprus Economic Research
We will look at …
• The Recession
• The Recovery
• The Adjustment, and,
• The Outlook going forward
2
THE RECESSION …
3
…. Deep but less severe than initially anticipated
Sources: Cyprus Statistical Service; Eurostat; Bank of Cyprus Economic Research
0.3
-3.2
-6.0
-1.5
1.7
-8.7
-3.9
1.1 1.9
2.3 2.2
2.8 2.2 2.3
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
2011 2012 2013 2014 2015 2016 2017 2018
Real GDP growth (actual: latest revision Oct. 2016, CyStat)
Initial Projections (IMF First Review, Sep. 2013)
Current Projections (IMF)
100.0
73.1 73.4
100.0 100.0
89.5
92.9
100.0
91.3
94.6
100.0
91.2 91.5
131.9
70.0
80.0
90.0
100.0
110.0
120.0
130.0
140.0
70.0
75.0
80.0
85.0
90.0
95.0
100.0
105.0
2007
Q4
2008
Q2
2008
Q4
2009
Q2
2009
Q4
2010
Q2
2010
Q4
2011
Q2
2011
Q4
2012
Q2
2012
Q4
2013
Q2
2013
Q4
2014
Q2
2014
Q4
2015
Q2
2015
Q4
2016
Q2
Greece Cyprus Portugal Ireland (RHS)
... in line with recessions in IE, PT and SP
THE RECESSION …
4
… Employment loses in line with GDP
Sources: Cyprus Statistical Service; Eurostat; Bank of Cyprus Economic Research
... And concentrated in construction and trade
89.4
92.8
89.5
91.0
16.6 16.5
12.4
12.1
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
84.0
86.0
88.0
90.0
92.0
94.0
96.0
98.0
100.0
102.0
11Q
2 11
Q3
11Q
4 12
Q1
12Q
2 12
Q3
12Q
4 13
Q1
13Q
2 13
Q3
13Q
4 14
Q1
14Q
2 14
Q3
14Q
4 15
Q1
15Q
2 15
Q3
15Q
4 16
Q1
16Q
2 16
Q3
Real GDP, Employment indices and the unemployment rate
Real GDP Index (100=2011Q2 4Q averages) Employment Index (100=2011Q2 4Q averages) Unemployment rate quarterly SA (RHS)
-0.5 -1.2
0.0
-5.1 -2.1
-0.2
0.2
0.0 -0.8
0.0 0.8
0.3
-0.1 -0.5
0.6
-1.9
-10.5 4.3
11.6
-0.4
48.3
20.4
2.1 -2.0 0.1 7.2
0.0 -7.4
-2.4 0.6 4.7 -5.5
18.5
100.0
-20.0
0.0
20.0
40.0
60.0
80.0
100.0
120.0
-14.0
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
Employment volumes 4Q moving averages: cumulative decline and shares 2011Q2-2015Q4
Cumulative decline in employment in percent points
Share in the absolute decline
THE RECESSION …
5
… Driven by secondary sectors and some services sectors on the supply side
Sources: Cyprus Statistical Service; Bank of Cyprus Economic Research
... and by domestic demand, mainly a collapse of fixed investment on the expenditure side
-0.6
-1.3
0.1
-3.3
-1.7
-0.9 -0.5
0.5
-0.9
0.5
-0.5 0.0
-0.8
0.1
0.0
-0.9
-26.2 -22.1
3.3
-45.3
-14.1 -11.0
-7.8
13.0
-9.7
5.1
-6.6
-0.4
-7.3
1.2 -0.6
-19.4
-50.0
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
Cumulative contraction of real GVA 2011-2014 by economic sector (total GVA -10,6)
Recession cumulatve decline in percent points Recession cumulative decline in % (RHS)
-4.7 -3.0
-0.6
-10.0
-1.6 -2.0
-6.4
7.8
-18.4
-10.6
-7.3 -16.5
-46.9
-17.3
-10.6
-50.0
-45.0
-40.0
-35.0
-30.0
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
Recession 2011Q2-2014Q4: Cumulative declines of real GDP by category of expenditure
Recession cumulative decline in pps Recession cumulative decline in % (RHS)
THE RECESSION … LEGACY AND PRIORITIES
• The Legacy: • Low fixed investment • High unemployment particularly for the long term unemployed • High public debt • High non-performing loans in the banking sector
• The Priorities
• To maintain the current growth momentum and raise potential output, through, • … further productivity gains, • … higher investment ratios, • … further gains in fiscal stabilisation • … and continuation with the reform process
6
THE RECOVERY …
7
… and was broadly based driven by tourism, professional, but also industry and construction.
… Started in 2015 and accelerated in 2016…
Sources: Cyprus Statistical Service; Bank of Cyprus Economic Research
100.0
96.6
89.4
92.8
2.6 2.8 2.9
84
86
88
90
92
94
96
98
100
102
-8
-6
-4
-2
0
2
4
Real GDP quarterly: % change year-on-year
Real GDP Index 100=2011Q2 of 4Q sums (Right Axis) Real GDP growth NSA (y-o-y)
0.2 0.4
0.1 0.2
1.1 0.3
-0.1 0.2
1.0
0.4 0.1
2.9
3.8 9.9
8.2
5.6
3.4 4.3
5.6
-1.3
1.9
10.2
1.9 2.4
3.4 3.8
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Recovery 2014Q4-2016Q3: cumulative increase of Gross Value Added by sector
Recovery: cumulative gain in percent points
Recovery: cumulative gain in % (RHS)
THE RECOVERY …
8
…Fixed investment in 2015 and 2016 was driven by transport equipment
…On the expenditure side growth was driven by both domestic demand and net exports
Sources: Cyprus Statistical Service; Bank of Cyprus Economic Research
1.1
-2.3
2.2
0.3
-1.7 -1.4
-0.3
0.0
0.1
-0.7
-0.2
0.1
-1.5
1.6
1.6
-2.3
-1.9
-1.1
-0.2
0.6
2012 2013 2014 2015 2016Q1-Q3
Contribution to growth by category of investment in percent points
Inventories Metal/machin. Transport Housing & other constru.
2.6
-0.3
-1.0
2.6
-0.4
2.8
0.2
-0.2
4.0 3.8
4.0
-1.8
20.9
4.0 3.8
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
Recovery 2014Q4-2016Q7: Cumulative increases of real GDP by category of expenditure
Recovery: cumulative gain in percent points
Recovery: cumulative gain in % (RHS)
THE RECOVERY…
9
For the first time in 2016, the unemployment rate dropped without the Labour Force shrinking
In the labour market unemployment is dropping and employment started to rise
Sources: Cyprus Statistical Service; Eurostat; Bank of Cyprus Economic Research
376
402
357 352
372
62.0
60.6
51.8
54.5
50.0
52.0
54.0
56.0
58.0
60.0
62.0
64.0
66.0
68.0
70.0
320
330
340
350
360
370
380
390
400
410
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
2016
Q2
2016
Q3
Employment volume and the employment rate
Employment in thousand persons (Right Axis) Employment rate %
1.9
-6.5 -6.7 -3.8
-4.5
-4.4
12.2
5.7
1.7
-12.3
7.4
-3.7
4.3
-9.4
18.7
1.2
0.2
5.9
-14.0
-0.2
-8.8
5.0
-6.5
4.5
2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3
The change in the numbers of unemployed equals the change in the labour force less the change in employment
Δ LFORCE (000s) Δ EMPLOYED (000s) Δ UNEMPLOYED (000s)
THE RECOVERY…
10
… and after it! On labour productivity Cyprus remains a laggard, before the memorandum …
Sources: Eurostat; Bank of Cyprus Economic Research
95 95 100 101 103 103 104 104 104 105 106 106 107 107
114
122
132
140 140
50
60
70
80
90
100
110
120
130
140
150
LU IT GE CY AU SP FI BE FR NE MA IE GR PT SL ES SK LV LH
The development of labour productivity as real putput per labour employed: 100=2002 (4 quarter average)
Values as at the end of 2009Q4 (4 quarter average)
94 98
100 101 101 101 102 103 103 104 104 105 105 106 107 109
112 114
131
50
60
70
80
90
100
110
120
130
140
GR IT FI CY AU PT BE FR LU GE NE ES SL SP MA SK LH LV IE
The development of labour productivity as real output per labour employed: 100=2010Q4 (4 quarter average) Values as at the end of 2016Q3 (4 quarter average)
THE RECOVERY … CONCLUSIONS
• The recovery gained momentum in 2016 • … it is broadly based with all sectors contributing positively with only few exceptions • The main drivers remain tourism and professional services • …however, most services sectors remain resilient, • … and industry and construction have shown string growth in 2016 • Tourism reached capacity constraints in the peak months and continued expansion will
require changes in three areas: building capacity and related infrastructure; extending the tourist season; and upgrading the tourist product to attract higher spending
• In the labour market the unemployment rate continues to decline and employment is rising amidst a rising employment rate and increases in the labour force, which bodes well for private consumption
• Wage moderation in recent years has been important in restoring competitiveness but Cyprus remains a chronic laggard in the Eurozone regarding productivity growth
11
THE ADJUSTMENT – RESIDENTIAL PROPERTY PRICES
12
… they appear correlated with GDP growth with a lag, and might thus turn higher in the next few quarters
Residential property prices declined by a cumulative 30,2% from peak and started to stabilise from the second half of 2015
Sources: Central Bank of Cyprus; Cyprus Statistical Service; Bank of Cyprus Economic Research
100.0
95.3
70.7 69.8
-3.7
-1.8 -1.6
-1.7
60
65
70
75
80
85
90
95
100
105
110
-15
-10
-5
0
5
10
15
Q4.
08
Q1.
09
Q2.
09
Q3.
09
Q4.
09
Q1.
10
Q2.
10
Q3.
10
Q4.
10
Q1.
11
Q2.
11
Q3.
11
Q4.
11
Q1.
12
Q2.
12
Q3.
12
Q4.
12
Q1.
13
Q2.
13
Q3.
13
Q4.
13
Q1.
14
Q2.
14
Q3.
14
Q4.
14
Q1.
15
Q2.
15
Q3.
15
Q4.
15
Q1.
16
Q2.
16
Central Bank Residential Property Index (Rebased to 2008Q4)
100=2008Q4 of 4Q moving averages (RHS)
Residential Property Index % change y-o-y
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
Q3.
09
Q4.
09
Q1.
10
Q2.
10
Q3.
10
Q4.
10
Q1.
11
Q2.
11
Q3.
11
Q4.
11
Q1.
12
Q2.
12
Q3.
12
Q4.
12
Q1.
13
Q2.
13
Q3.
13
Q4.
13
Q1.
14
Q2.
14
Q3.
14
Q4.
14
Q1.
15
Q2.
15
Q3.
15
Q4.
15
Q1.
16
Q2.
16
Residential property prices and real GDP in 4Q moving averages
Residential property prices % change Real GDP % changes
THE ADJUSTMENT – PUBLIC FINANCES
13
As a result total Gross Debt may have peaked at the end of 2015 at 19 billion euro or at about 109% of GDP.
The budget remains near balanced after 2013, excluding costs for recapitalising the credit cooperative sector
Sources: Cyprus Statistical Service; Bank of Cyprus Economic Research
3.2
0.9
-5.5 -4.8
-5.7 -5.8
-4.9
-0.2 -0.1
1.1
6.0
3.5
-3.1 -2.7
-3.5 -2.9
-1.8
2.6 2.7
4.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016Sep -8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
Budget balance % of GDP Primary balance % of GDP
53.9
45.1
53.9 56.3
65.8
79.3
102.5 108.2 108.9 109.0
9.4 8.5
10.0 10.8
12.9
15.4
18.5 18.8 19.0 19.0
0
2
4
6
8
10
12
14
16
18
20
40
50
60
70
80
90
100
110
120
130
140
2007Q4 2008Q4 2009Q4 2010Q4 2011Q4 2012Q4 2013Q4 2014Q4 0,0 2016Q2
Gross debt as the end of the period
Gross debt as % of GDP Gross debt in billion euro
THE ADJUSTMENT – PUBLIC FINANCES …
14
This follows significant adjustments in public finances especially on the expenditure side
Expenditures dropped by 17% and revenues only by 3,7% between 2011Q4 and 2016Q3 on a 4Q moving sums basis
Sources: Cyprus Statistical Service; Bank of Cyprus Economic Research
100.0
89.3
92.3
82.6 83.0
90.4
97.6 97.5 96.3
80.0
85.0
90.0
95.0
100.0
105.0
Government expenditures and revenues index: 100=2011Q4 of 4 Q moving sums
Gov. Expenditure index Gov. Revenue index
-413
-180
-657
-140
66
-81
-700 -600 -500 -400 -300 -200 -100 0 100 200
Capital expenditure
Interm. Consumption
Wages
Social benefits
Interest
Other
Reductions in total expenditures by category: cum. 2011-2015 in million euro
THE ADJUSTMENT – FUNDING CONDITIONS IMPROVED
15
Total deposits are edging higher whilst loans continued to drop sharply down by 11,9% in September y-o-y
Deposits increased in 2016 with loans deleveraging - the loans to deposits ratio dropped to 112,9% in September.
Sources: Central Bank of Cyprus; Bank of Cyprus Economic Research
87.9
133.7 137.1 125.8
112.9
61.5
72.5
62.8 54.4
53.9
69.9
70.2
47.5 46.0 45.7
46.8
47.7
60
110
160
210
260
0
10
20
30
40
50
60
70
80
Loans, deposits and funding conditions
Loans to deposits ratio % Total Loans in billion euro Total deposits in billion euro
-0.8 -2.3
0.2 1.9 3.4
2.5
-8.4 -9.6
-13.0
-11.4
-11.9
-15.0
-10.0
-5.0
0.0
5.0
10.0
Total loans and deposits % changes year-on-year
Total deposits % change y-o-y Total loans % change y-o-y
ECONOMIC ADJUSTMENT - NPEs
16
Total NPE ratio to gross loans has been stable due to deleveraging - other NPE indicators have been improving
Non-performing exposures peaked in Feb. 2015 at 28,9 bn euro and dropped by 13,3% to 25,1 bn euro in Aug. 2016
Sources: Central Bank of Cyprus; Bank of Cyprus Economic Research
28.9
26.2
25.3 25.1
100.0
90.4
87.3 86.7
75
80
85
90
95
100
23
25
27
29
31
33
35 Non-Performing Exposures - NPEs
NPEs in billion euro NPEs Index 100=February 2015
48.2
36.1
27.0
41.7 38.5
51.4
0
10
20
30
40
50
60
Ratio of NPEs to gross loans
Ratio of exposures
past due 90 days to gross
loans
Ratio of total restructured facilities to gross loans
Ratio of restructured
facilities NPEs, to total NPEs
Ratio of total impairment to
total NPEs
Ratio of total impairment to
exposures past due 90
days
Loans and selected NPE related ratios
As at end August 2016
THE OUTLOOK
17
In public finances, a near balanced budget and primary surpluses will reduce the ratio of public debt to GDP
Economic growth will remain positive but will moderate in the medium term and unemployment will fall further
Sources: European Commission, European Forecasts, Autumn 2016
1.7
2.8
2.5 2.3
15.0
12.5
11.1
10.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2015 2016 2017 2018
Real GDP growth and Unemployment (European Commission)
Real GDP (% change) Unemployment rate (%)
107.5 107.1
103.7
100.6
-0.2 -0.3 -0.4
0.0
1.7
2.3
2.0
2.5
96.0
98.0
100.0
102.0
104.0
106.0
108.0
110.0
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2015 2016 2017 2018
Publid finances (European Commission)
Public debt (% of GDP) Budget balance (% of GDP)
Primary balance (% of GDP)