THE CYPRIOT economy is now officially in recession, following a 0.5 per cent contraction in the three months to June, its second consecutive negative reading for GDP, data showed yesterday.
Coupled with figures for the first quarter, which showed gross domestic product to have shrank 0.6 per cent quarter-on-quarter in the first three months of the year, negative growth in the second quarter means that the widely accepted definition of a recession – two consecutive quarters of negative economic growth – has been met.
According to the Statistics Department, the contraction in the second quarter of 2009 was down to significant losses in the hotel and restaurant sectors as well as the “the negative performance of manufacturing, construction, trade and transport activities”.
With economic jargon and a plethora of financial data making the headlines since the onset of the global financial crisis, the significance of yesterday’s news that Cyprus is officially in recession is largely definitional, said Michalis Florentiades, head of economic analysis and research at Hellenic Bank.
“What does the term recession mean? It signifies that we are going through hard times economically. This is already common knowledge. People on the street are already feeling the pinch, this is just rubberstamping what we already know,” Florentiades told the Cyprus Mail.
Only last month, Finance Minister Charilaos Stavrakis forecast a 1.0 per cent economic growth for the year, however, given the decline of the housing market due to the considerable drop in property transactions across the island and a drop in revenue from tourist arrivals this year, recording any sort of positive growth for 2009 looks uncertain.
“Based on some negative statistics that have surfaced very recently and with a bleak outlook on the tourist industry for this year, it seems unlikely that we will see a recovery in the third quarter and it appears hard to see how we can avoid stagnation, negative growth, for the year,” Florentiades cautiously predicted.
News of the island’s economy entering a recession came just a few hours after data showing shock recoveries in the euro zone’s largest economies, France and Germany. Both countries recorded positive growth after a long period in the red and the 16-nation euro zone as a whole performed better than expected, but still did not manage to move out of the recession with a 0.1 per cent slide following a 2.5 per cent drop in the first quarter.
While talk of an economic recovery has been ongoing for a number of months, yesterday’s figures have led some experts to herald a global recovery from the crisis, a positive climate that could ensure that Cyprus avoids the full force of a recession.
“Even though it is not clear whether these initial signs of a global recovery will lead to a strong resurgence, hopefully this will stimulate Cyprus to steer clear of the worse,” Florentiades added.
