Cyprus tourism impact due to COVID-19 poses significant risks to Cyprus economy

Cyprus is one of the EU’s smallest and most isolated countries, but it hasn’t remained untouched. Travel and tourism were abruptly curtailed.

In mid-April the Central Bank of Cyprus urged banks to focus on the provision of short-term liquidity facilities for up to 12 months at preferential interest rates. This was designed to help viable businesses facing financial difficulties as a result of the pandemic, which in Cypriot terms is generally defined as a reduction of at least 25% in turnover.

For individuals, Cyprus adopted many of the standard measures seen across Europe and beyond: tax payment holidays, national insurance suspension and other easing measures aimed at keeping households afloat and consumer confidence from completely cratering.

The European Commission’s summer economic forecast expects significant risks to the Cyprus economy as a result of the coronavirus pandemic’s impact on the tourism sector, which is predicted to see just 25% of last year’s revenues and high unemployment.

According the forecast’s chapter on Cyprus, “Cyprus was on a solid growth path before the global outbreak of COVID-19”, but “the pandemic, and the confinement measures that followed, have dramatically changed the picture.”

“In the first quarter of 2020, economic growth slowed down considerably, 0.8% (year-on-year), reflecting a significant fall in external demand for goods and tourism” and “economic sentiment and expectations in services are at a historic low, despite a slight improvement in June”, the European Commission stated.

“Private consumption and investment, notably in equipment, are expected to decline substantially”, but “the stimulus measures adopted, are expected to support employment and household incomes and help businesses to continue investing and maintaining their capacity, thus somewhat mitigating the severe impact on domestic demand”. This is also reflected “in a robust increase in public consumption”.

The contribution of net exports to GDP growth “is set to be significantly negative in 2020 and to turn positive in 2021, albeit not recovering fully to its pre-pandemic levels”.

The COVID-19 pandemic is expected to “significantly dampen international demand for tourism”. Tourist arrivals and revenues “decreased by 46.5% and 52.4%, respectively in the first quarter of 2020 (year-on-year)”. The travel restrictions in place throughout the second quarter, “had a severe impact on the sector”.

“Even if the expected gradual recovery began in July, revenues from tourism could hover around 25% of last year’s level.

“Further prolongation of the travel restrictions from the UK and Russia – Cyprus’ main tourist markets – could have a strong negative effect. Furthermore, the sharp increase in unemployment in services linked to tourism and the increased risk of bankruptcies does not bode well for the recovery in 2021.

Costa & Associates Auditors Ltd

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