DBRS: Cyprus’ GDP to maintain robust growth, while challenges remain

Cyprus’ GDP is expected to maintain robust growth in the coming years, according to a report by Canadian rating agency Morningstar DBRS.

The agency also forecasts continued improvements in unemployment rates, which are anticipated to positively impact the country’s fiscal performance.

However, the report outlines several challenges that persist for the Cypriot economy. The country’s small, service-based economic structure leaves it vulnerable to external shocks. Additionally, Cyprus continues to face high non-performing loan (NPL) ratios, which, despite recent progress, remain above the Eurozone average. Labor market productivity also lags behind comparative benchmarks, further constraining economic potential.

As the rating agency points out, data from the Central Bank of Cyprus show significant progress in addressing NPLs. The NPL ratio at approved credit institutions fell to 6.8% in August 2024, a sharp decline from 43.7% at the end of 2017. This translates to a reduction of €18.9 billion in absolute terms.

Morningstar DBRS notes that this downward trend is likely to continue, though resolving the remaining NPLs will take time. By June 2024, credit acquisition companies held exposures totaling approximately €21 billion, of which 94% were classified as non-performing.

It also noted that the public asset management company, KEDIPES, has faced delays in executing its business plan due to factors such as foreclosure suspensions, the COVID-19 pandemic, and geopolitical tensions. Consequently, its operational timeline has been extended to 2030.

According to DBRS, most of the underlying real estate collateral in Cypriot transactions pertains to residential properties. The agency notes that housing prices continued to rise, with an annual increase of 8.0% as of the second quarter of 2024 (6.2% for houses and 12.0% for apartments).

Regarding the geographical distribution of this collateral, DBRS states that the majority is in Nicosia and Limassol. These two areas are highlighted as the most stable real estate markets in Cyprus.

(Source: CNA)