Economy

The European Commission this week projected a significant 30 per cent decrease in Cyprus’ public debt, as a percentage of its Gross Domestic Product (GDP), by the end of 2024.

This projection was voiced within the framework of the European Semester, as the Commission greenlit the draft of Cyprus’ state budget for 2024, aligning it with the Council’s recommendation from July 14, 2023.

In a statement, the European Commission expressed its contentment with Cyprus’ budget draft, asserting that it corresponds to the Council’s recommendation. It also forecasted that Cyprus would achieve its mid-term target by 2024.

Notably, Cyprus had already met its mid-term target for a neutral structural position starting in 2023, with an estimated structural surplus of 1.2 per cent in 2023 and 1.9 per cent in 2024.

Moreover, the European Commission suggested maintaining a fiscally sound position while anticipating the cessation of energy support measures by 2024.

The commission’s recommendations in July 2023 advocated for gradually phasing out support measures by 2023 and 2024, suggesting that if energy price increases necessitate further actions, Cyprus should ensure targeted assistance for vulnerable households and businesses.

Additionally, the recommendation highlighted the need to maintain public investments, estimated to reach 2.8 per cent of GDP.

Regarding the fiscal balance, the Commission estimated a slightly lower surplus of 2.1 per cent of GDP in 2024 (compared to the budget estimate of 2.8 per cent).

This adjustment factored in the impact of the rent subsidy plan, expanded support measures, and other housing policies disclosed after the budget draft submission.

In terms of the public debt ratio to GDP, the commission projected it to be around 71.5 per cent by the end of 2024, exceeding the Maastricht Treaty’s reference point of 60 per cent but reflecting nearly a 30-percentage-point decrease from the ratio recorded in 2021.

This downward trend in the debt-to-GDP ratio is attributed to the nominal GDP increase and maturing debt repayments.

The commission’s assessment provides a positive outlook for Cyprus’ fiscal health, indicating progress in reducing public debt and maintaining fiscal stability as the country progresses through its economic targets.

Larnaca Chamber of Commerce & Industry (Evel) president Stavros Stavrou used his speech at this year’s annual assembly to highlight the city and district of Larnaca’s substantial strides toward economic recovery.

“After decades of stagnation, Larnaca is now firmly on the path to revitalisation,” stated Stavrou.

He placed the spotlight on major ongoing projects, such as the removal of oil tanks and gas facilities, the construction of the Larnaca-Dekelia road, port-marina development, and Phase 3 of the Larnaca-Dekelia road.

Stavrou underscored the transformative developments in the region, labelling them as quite substantial, acknowledging the new risks on political and economic fronts, particularly Cyprus’ proximity to geopolitical crises in neighbouring countries.

Moreover, Stavrou expressed concerns about the 5.9 per cent unemployment rate, urging collaboration among the government, Chamber of Commerce, and other social partners to strategise on resolving the ongoing issue of labour shortages.

Stavrou criticised the delay in implementing infrastructure for the reception of Liquefied Natural Gas (LNG), highlighting the burden of energy costs borne by businesses and consumers over the years.

Cyprus Chamber of Commerce (Keve) vice president Othonas Theodoulou echoed Stavrou’s sentiments, stressing the escalating risks in the Eastern Mediterranean region and the anticipated rise in energy costs, forewarning its impact on inflation, tourism, and investments, especially from Israel.

Despite some positive developments, including the influx of international or local firms based in Israel, Theodoulou emphasised that the conflict in Israel exacerbates Cyprus’ economic uncertainty, indicating less optimistic predictions for the country’s economic trajectory.

He further stated that “based on estimates from the European Union and the government, the growth rate in 2023 is expected to shrink to 2-2.5 per cent of GDP from the 5.2 per cent recorded in 2022”.

“At the same time, inflation, which stood at 3.85 per cent in October 2023, may increase due to the crisis in Israel,” he added.

He continued by saying that “unemployment, currently around 6 per cent, is expected to rise in the coming winter months due to the end of the tourist season”.

Regarding public finances, the Keve vice president mentioned that “new needs for state support to the people will arise, beyond the €196 million recently announced by the government”.

The International Monetary Fund (IMF) has made a slight increase to its global growth outlook for 2023, due to “surprisingly resilient” demand in the United States and Europe, easing energy costs and the reopening of China’s economy after Beijing abandoned its strict COVID-19 restrictions.

It still sees the pace of global growth falling this year compared with 2022, but by a smaller margin than it predicted in October. The IMF is now forecasting 2.9% growth for 2023 – up from a 2.7% forecast in October – versus 3.4% growth last year.

The figures are in its latest World Economic Outlook, which warns that the world could easily fall into recession this year. “Central banks are likely to continue to tighten monetary policy to fight inflation, and concerns that this restrictive stance could tip the economy into a recession have increased in major advanced economies,” the report says.

The IMF now expects US GDP growth of 1.4% this year, up from a 1.0% prediction in October and following 2.0% growth in 2022. This is down to stronger-than-expected consumption and investment in the third quarter of 2022, a robust labour market and strong consumer balance sheets.

The Eurozone outlook is also up – to 0.7%, versus 0.5% in October, although this is down from 3.5% growth in 2022. The IMF says Europe has adapted to higher energy costs more quickly than expected.

The IMF has revised China’s growth outlook sharply higher, to 5.2% from a 4.4% forecast in October. Zero-COVID policies in 2022 slashed China’s growth rate to 3.0%, putting it below the global average for the first time in more than 40 years.

India’s outlook remains robust, with unchanged forecasts for a dip in 2023 growth to 6.1% but a rebound to 6.8% in 2024, matching its 2022 performance.

Britain is the only major economy the IMF expects to shrink this year. It forecasts a 0.6% fall in GDP as households struggle with rising living costs, including for energy and mortgages.

For 2024, the IMF has cut its global growth forecast very slightly to 3.1%, from 3.2% in October.

During the Eurozone crisis, Germany imposed its philosophy of strict austerity on addressing the structural economic problems in the Eurozone.Furthermore, the architecture of the Eurozone was faulty, as was pointed out by Martin Feldstein and others in the 1990s.Despite such warnings, it was erroneously assumed that the market could effectively address all possible issues which might have come up.This belief was upheld despite the absence of an effective crisis-mitigating mechanism.As a result, countries that found themselves in a deep recession were forced to counterproductively pursue a strict fiscal policy, with depression being the inevitable outcome.Indicative of this is the example of Greece: the country lost 25% of its GDP while more than 600,000 Greeks, mostly young people, had to search for opportunities in other countries.Likewise, the treatment of Cyprus in 2013 was unnecessarily harsh.This can be better understood by comparing how Spain’s rather similar banking crisis was resolved.On the one hand, Spain was offered a loan of €40 bln aiming to save its banking system.This loan was provided without a Memorandum of Understanding or a rescue package.On the other hand, Cyprus was treated much differently and perhaps vindictively.Indeed, Troika exhausted its discretionary power on the scale of austerity enforced using Cyprus as a trial ground of bail-in interventions.Be that as it may, this approach (which I describe as Neoliberal Model II) reflected what was perceived as economic orthodoxy.In this Model, the state’s role is limited, and the market system is given excessive importance.Moreover, the principles of solidarity and equity are considered irrelevant by this Model.Its value system revolves around individualism and profit maximization. Inevitably collective goals are ignored.I am noting a distinction with what I describe as Neoliberal Model I, which challenged Keynesianism and influenced policymaking in the 1970s-2000.More specifically, this Model focused on reducing government spending and deregulation.In addition, it was also in favour of tax reductions and incentives aiming to increase labour supply and investment.While the Neoliberal Model I had its philosophy, it also responded to what it considered the excesses of Keynesianism and the welfare state.Politically, this approach was expressed by President Ronald Reagan in the US and Prime Minister Margaret Thatcher in the UK.Evidently, this philosophy was strongly supported by the middle classes in several countries.Subsequently, President Bill Clinton’s Neo Keynesian approach maintained some of the pillars of Neoliberalism I.One of Clinton’s objectives was to ensure that the benefits of growth and development were enjoyed and shared by a broader set of Americans. He certainly achieved this goal.However, what I describe as Neoliberal Model II, a model propagated, implemented, and exported by Germany, went too far.Even before the pandemic, the impact of the pursued philosophy was negative.More specifically, the pursued rationalization of economic indicators came at a very high socioeconomic cost: reduction of economic activity, higher unemployment, and growing inequality.When Covid 19 came, and many countries faced extraordinary circumstances, the EU had to revisit this policy approach.To begin with, it was clear the health sector and infrastructure were adversely affected by the sustained draconian fiscal austerity.This led to a high social cost, but this approach could not remain unaltered with the pandemic.The state had a role to play, and there was also relaxation of the rules of fiscal austerity.Furthermore, the Eurogroup acknowledged on April 9, 2020, that the policy approach to the previous crisis had been inadequate.The question is, what would replace the Neoliberal Model II.I think it is important to think and act beyond ideological perspectives.PragmatismPragmatism is of paramount importance. Private initiative and the market system will always be very important.But so is the concept of a mixed economy. In this regard, the state will always have a role to play.This should entail three roles: strategic, social and referee.It is important to understand that it is wrong to decouple fiscal policy from economic circumstances within this framework.This does not mean that we should push aside the principle of fiscal prudence.It means, though, that fiscal discretion should be part of policymaking.In times of recession, the government should stimulate the economy by pursuing expansionary policies.In times of economic growth, budgets should be balanced, and in some cases, it will be appropriate even to have surpluses.Last but not least, a new model should also revisit the broader value system.The principle of solidarity should be given great attention.Furthermore, equal opportunities for all should be encouraged.Lastly, while pursuing personal goals, we must simultaneously respect and work for collective objectives.

© Financial Mirror

The UK economy rebounded last year with growth of 7.5% despite falling back in December due to Omicron restrictions, official figures show.It was the fastest pace of growth since 1941, although it came after a dramatic 9.4% collapse in 2020 as the pandemic forced parts of the economy to shut.In December, the economy shrank 0.2% as Omicron restrictions hit the hospitality and retail sectors.Chancellor Rishi Sunak said the economy had been “remarkably resilient”.

The Office for National Statistics (ONS) figures showed that in the last three months of 2021 growth was 1%, which ONS director of economic statistics Darren Morgan said was “pretty healthy” given Omicron’s spread and the introduction of some restrictions.

(CNN)In 2022, the European Union must confront some of the most difficult challenges it faces if it is ever to become the geopolitical power its leaders so desperately want it to be.The Covid-19 pandemic has left efforts to create a more assertive global Europe on the backburner — at the very moment when the global politics of the past two years has created myriad problems for the bloc. These will only get worse if prompt action isn’t taken.Whether it’s a migration crisis on the bloc’s frontier with Belarus; the Russian military buildup on the border of Ukraine and the antagonism of member states like Lithuania and Estonia; or Chinese trade threats, the EU badly needs a strategy for dealing with the world beyond its borders before these hybrid issues overwhelm and weaken the union.Bold proposals have been made by the Commission that could, in theory, go some way to solving these problems.On Russian aggression and other military issues, the EU has proposed rapid deployment units tailored to specific missions, reducing the reliance on NATO and the US to protect the continent. On China, Brussels is trying to counter Beijing’s giant global infrastructure initiative by offering alternative investment options. In recent years, the EU has tried to walk a near-impossible tightrope, maintaining an economic partnership with China while not alienating an increasingly anti-Beijing US.

Turkish producers say extreme volatility in the lira is hurting them more than high interest rates as President Recep Tayyip Erdogan wages a war against borrowing costs at the expense of price stability.From machinery to packaging and construction, industry has for weeks been battered by unprecedented swings in the lira. The currency has shed just over a third of its value against the dollar since September amid Erdogan’s calls for the central bank to lower rates as he seeks to spur economic growth and shore up his waning popularity ahead of 2023 general elections.The lira, the worst-performing emerging-markets currency in the world, clawed back some losses after Erdogan on Monday introduced emergency measures — effectively an interest-rate hike in disguise — in an effort to stem the volatility. But there’s been little let-up in the currency’s gyrations.

Inflation is surging in Brazil, forcing a country with one of the highest death rates from Covid-19 to grapple with the economic fallout of the pandemic.While the global economy is forecast to rebound more than 4% next year, including in countries bordering Brazil, more economists expect Brazil to remain stuck in recession during 2022 as it battles one of the world’s highest annual inflation rates of 10.7%.“Brazil really stands out—its inflation rate has risen much faster than almost any other emerging economy, and you can really see that hitting consumers,” said William Jackson, chief emerging-markets economist at the London-based research firm Capital Economics.

Inflation rates from Canada to Germany have climbed to the highest level in decades as businesses and consumers emerge from lockdowns, boosting energy prices and prompting supply bottlenecks. U.S. inflation hit a 39-year high in November, the government reported Friday.

At 10.7%, Brazil’s 12-month inflation rate is the third-highest among the major developed and emerging economies that form the Group of 20, after Turkey and Argentina, according to the Organization for Economic Cooperation and Development. A severe drought, the worst in almost a century, has contributed to inflation, drying up hydroelectric reservoirs and adding to demand at more-expensive thermal plants.A sharp depreciation in the Brazilian real—which has lost about 25% of its value against the dollar over the past two years—has increased the price of imported goods including fuel, adding to inflation.

Stop us if you’ve heard this before: Market strategists are predicting that 2022 will finally be the year when investors choose value stocks -— like banking, oil, consumer, industrial and healthcare companies — over Big Techs, such as Apple (AAPL), Amazon (AMZN) and Facebook owner Meta (FB).It’s been a common refrain among stock pickers for several years. But the so-called FAANGs, as well as Microsoft (MSFT), Tesla (TSLA) and Nvidia (NVDA), continue to dominate the market weighting of the S&P 500. So will investors really finally quit these leaders of the Nasdaq for cheaper bargain stocks?For what it’s worth, that appeared to be happening Monday. The Dowsoared more than 700 points, or 2.1%, led by gains in Walgreens (WBA), Amgen (AMGN), American Express (AXP), Boeing (BA), Visa (V) and Coca-Cola (KO). But the Nasdaq was up by less than half that amount.

The People’s Bank of China on Monday said it would cut the reserve requirement ratio for most banks by half a percentage point, starting December 15. That move, which reduces the amount of money that banks have to keep in reserve, will unleash some 1.2 trillion yuan ($188 billion) for business and household loans.The decision — the second cut to that ratio this year — came on the same day China’s Politburo signaled that it may take more aggressive actions to protect the economy in 2022. The Chinese Communist Party’s leadership team, chaired by President Xi Jinping, said in a statement that “ensuring stability” would be a top priority in the coming year.