Cyprus: unemployment issues and economy growth prospects

The latest statistics related to Cyprus’ percentage of unemployment rate shows a drop in December (11.3%), which is less than 1.5% at that time in 2016. Statistics from December also show that this country’s jobless ratio was one of the highest in the EU (the top highest rates recorded Spain and Greece, and the lowest the Czech Republic, Malta and Germany, according to Eurostat data).

Youth unemployment has significantly increased in the last couple of years, and it’s high above the EU average. The most critical area of the country is the north, but statistics show that things got slightly better in the last three years. The reason for this lies in the structure and the conditions on the labor market are not favorable. If Cyprus’ economy in 2018 wants to be healthier and more progressive, it must implement new policies and the regulatory framework in order to inspire public and private investment.

Youth employment strategy

The Ministry of Labor announced an employment strategy in 2015, according to which they planned to employ, train or give internships to 7 500 young people up to the age of 24 by the end of 2017. This idea gave way to other new plans and the total cost was € 58 mill. These plans concentrate on those young people who couldn’t find a job for a long period of time. The strategies also encourage young people to gains skills and training for work experience and prepare better for the challenges on the job market after finishing school or losing a job. Youth Opportunities Initiative also underlines the importance of the collective power of workers and unions which are necessary to protect the employers‘ rights and enable better opportunities.

No quick solutions

A high percentage of jobless youth has been noticeable even before the exclusion of Cyprus from the market, and it’s not easy to stop the unemployment trend due to the recession and business downsizing. The high unemployment level is caused by high bank loans and such economic situation does not imply a healthy economy. An excess supply and declining demand imply the dropping of wages and nobody can guess when this downward path might cease. Better negotiations with troika investment in development could kick-start Cyprus’ economic growth, but no quick solutions will get things better.

Economic profile

Cyprus’ economy is generally dominated by service sector including tourism, real estate, shipping, and finance that contributes with 4/5 of GDP. It has been an EU member since 2004, and it adopted euro for years later. The first years of membership brought progress and growth of 4% and this increasing trend was disturbed by the global financial crisis that hit the most important economic sectors. In addition, overexposure to Greek debt brought further deterioration. As the largest holder of Greek bonds, it experienced numerous credit downgrades and finally lost access to important international markets in 2011, and it was therefore forced to apply for the economic bailout program. After the election, there was reached an agreement on $13 billion if Cyprus accepted capital controls. Troika, that approved the bailout, had a demand that Cypress must come up with structural and financial reforms and start a privatization process. Despite the financial sector burden, it achieved to outperform fiscal targets and emerge from recession in 2015.

Although the entire island of Cyprus belongs to the EU, the EU legislation did not include the area administered by Turkish Cypriots, and the reason is political, of course. This area has a market-based economy dominated by the service sector and most of the population is employed by the government. Statistics from 2012 show that the service sector contributed 58.7 % to economic input and manufacturing 2.7% and agriculture 6.2%. Despite being part of the country, TRNC (Turkish Republic of Northern Cyprus) maintains few economic ties with the rest of the country and it mostly relies on Turkey with Turkish lira as a preferred currency, although other currencies are acceptable as well. TRNC’s economy remained almost undamaged due to the good health of Turkish economy, the lack of developed financial sector and the separation from the rest of the country.

Economic forecast

The forecast indicates that the rate will keep dropping to 9.0%, however, the public debt is expected to rise to 105.7% this year, with only a slight drop next year. The budget will remain positive and Cyprus’ GDP will keep increasing 3.6% this year and 23.3% in 2019. Despite the generally positive forecast, the country will be facing many risks and challenges in the fields of tourism and gas exploration. Also, fiscal and public debt risks will be evident this year, but they are expected to die down the next year. Despite the increase of GDP, net exports will negatively affect the growth. Many sectors increased the number of employed and further expectations related to better employment and consumer confidence are increasing. Inflation is expected to jump (despite the fact that it was surprisingly low last year) due to service and energy costs, but the investment in construction and tourism will keep blooming due to a growing demand. However, the government should pay a close attention to the regulation of public sector payroll, health system reform’s costs, and banking sector.

The Forex capital of the world

Cyprus is viewed as one of the most significant global financial hubs in the world, but why is it so? CySEC has become a trusted brand that stimulated many successful companies to relocate to Cyprus. Low taxes are extremely attractive for investment companies (their corporate tax is the lowest in the EU) along with favorable trading conditions, low commission, and fast execution. With an entire range of Forex experts its easy to establish a business contract saving time and money, and on the other hand, being helped to develop a stable professional environment and simplify all operational issues.