Tassos J. Yiasemides on how global market turmoil and Middle East escalation could impact Cyprus

Commenting on the recent global developments related to many of the world’s financial markets and their potential impact on Cyprus, Tassos J. Yiasemides, Board Member and Head of Global Compliance Management Services at KPMG in Cyprus, suggested that the turmoil was mainly driven by concern over the status of the global economy and that of the USA in particular but that Cyprus' economy could likely also be affected.

More specifically, in comments to CBN on the financial market events of 5 August, Yiasemides said, “Yesterday’s turmoil in the financial markets was driven mainly by the fear about the status of the global economy and more specifically in the USA, where the statistics being announced indicate a slowdown.”

“They have also been negatively impacted by the escalation of tension in the Middle East, the decision of the Japanese Central Bank to increase the interest rates and the closing of positions of carry trades ie when the investor borrows money at a low interest currency to invest in a market with higher returns,” he continued.

As Yiasemides noted, “The analyses that the USA economy may be at the edge of recession intensified the discussions about the acceleration of the decisions by the FED for reducing the interest rates. This will most probably influence the decisions of the other Central Banks as well.”

He went on to point out that Cyprus’ economy is affected by the external political and economic situation, “especially in countries which are either neighboring or with which there are significant economic ties.”

“Although our economy showed resilience in the last year, there are still significant challenges,” Yiasemides continued, underlining that, “Any escalation in the military operations in the Middle East, especially with the involvement of Iran will affect sectors of the economy like tourism and real estate. Investors may postpone their decisions since most probably they wouldn’t proceed in a period of turbulence.”

He also cautioned that, “The fact that big economies in Eurozone like Germany face difficulties might impact all economies of the union, especially those closely financially connected. The next meeting of the Board of ECB is also important since the market is expecting that there will soon be reductions in interest rate, gradually, that might boost economic activity.”