Cyprus Business Now: weekly wrap-up

Here are the top business stories in Cyprus from the week starting August 26:

Starting with the economic landscape, the value of Cypriot bonds held by the Eurosystem has decreased to €6.38 billion as the European Central Bank (ECB) proceeds with its balance sheet reduction. These actions represent a strategic effort to tighten monetary policy amid inflation concerns, impacting 28 per cent of Cyprus’ issued debt.

Turning to fiscal policy reform, the University of Cyprus’ Economics Research Centre (CypERC) is advancing into the second phase of its tax reform project. Focusing on green taxation and incentives for energy efficiency, this initiative aims to balance environmental sustainability with economic growth, a critical agenda item in upcoming discussions with government officials.

In the commercial real estate sector, demand for modern office spaces in Limassol remains high, driven by a pursuit for energy-efficient buildings. This sustained demand, even with increased supply, has led to a 14 per cent rise in office prices since early 2022, highlighting the gap in contemporary commercial properties.

On the innovation front, a Limassol-based startup, Correctify, is revolutionising the hospitality industry with its AI-driven solution for menu creation. This technological advancement addresses significant challenges in menu proofreading and the management of culinary terminology, which are crucial for maintaining accuracy in hospitality services.

Concerning consumer rights, the Cyprus Consumers Association has noted a significant uptick in complaints this summer, primarily regarding airline services. This rise in grievances emphasises a lack of awareness among Cypriots about their travel rights, prompting a need for enhanced consumer education.

Regarding tourism, the industry shows resilience with high occupancy rates in Cypriot hotels, despite global economic pressures and regional conflicts. This robust performance suggests a strong foundation for future growth and the need for strategic planning to address upcoming challenges like climate change.

In terms of broader economic indicators, Cyprus witnessed an improvement in its economic sentiment in August 2024. Increased confidence across the services, construction, and manufacturing sectors contributed to this uplift, reflecting a positive trend in business expectations despite a slight dip in retail confidence.

As for strategic developments in tourism, the Cypriot government is crafting a national strategy to enhance its position as a prime cruise destination in the Eastern Mediterranean. This plan involves public consultation and strategic phase implementation, aiming to boost economic and employment opportunities in the sector.

Looking at fiscal management, the Finance Ministry is focused on reducing public debt to below 60 per cent of GDP by 2026. Crediting this ambitious goal to disciplined fiscal policies and budget surpluses, the government remains committed to strengthening economic stability.

On the banking front, the Cypriot banking system saw a net increase in deposits in July, a positive reversal from previous declines. This improvement is indicative of growing financial stability and confidence within the domestic economy.

In the investment sector, Brookstreet Equity Partners launched a new platform in London, targeting critical sectors like AI and green energy. This development highlights the firm’s commitment to fostering innovation and sustainable value, enhancing its investment footprint in Cyprus and beyond.

Addressing the property market, Delfi Partners director Michalis Loizou provided insights into the short-term rental market, arguing against the notion that it primarily drives up rental costs. This perspective adds depth to the ongoing debate over housing affordability and the economic impact of tourism in Cyprus.

Adding to that, the state-owned asset management company Kedipes has reported strong interest in its mortgage-to-rent scheme, aimed at protecting vulnerable homeowners. This initiative reflects broader efforts to stabilize the housing market and provide security to residents amidst financial uncertainty.

Reflecting on the tourism sector, Cyprus’ tourism revenue reached €385.2 million in June 2024, evidencing a 6.6 per cent increase from the previous year. This rise contributes to a total revenue of €1.13 billion in the first half of 2024, up 4.2 per cent from 2023.

Notably, the average expenditure per tourist also rose, with distinct spending patterns observed among tourists from the United Kingdom, Israel, and Poland, according to data gathered at Cyprus’ major airports.

On the employment front, the unemployment rate in Cyprus has shown a positive decline to 4.6 per cent in the second quarter of 2024, improving from 5.7 per cent the previous year. This reflects a slight decrease in the labor force participation rate, with male participation remaining higher than female, indicating ongoing disparities in the job market.

In the hospitality industry, the President of the Cyprus Hoteliers Association reported that despite some challenges, including geopolitical tensions in the Middle East affecting bookings, the hotel occupancy rates have remained robust. This resilience underscores the sector’s capacity to withstand external pressures, maintaining satisfactory performance levels during the peak summer months.

Turning to the banking sector, Hellenic Bank announced a notable profit after tax of €189 million for the first half of 2024, an 18 per cent increase over the prior year. This financial growth is supported by a strong capital position, showcasing the bank’s ability to navigate economic uncertainties and maintain a solid performance amidst fluctuating geopolitical and economic conditions.

Regarding government finances, the Cyprus general government reported a substantial surplus of €702.50 million, or 2.2 per cent of GDP, in the first seven months of 2024. This marks a significant improvement from the previous year, driven by increases in various revenue streams, including taxes on production, imports, and income. Such fiscal health is critical for sustaining public services and investment in national priorities.

Finally, in the real estate market, Cyprus witnessed some of the priciest property transactions in July, with a total value of €55.7 million. The real estate analytics highlighted a strong preference for residential properties, particularly in districts like Limassol and Paphos, which continue to attract substantial investments.