The Cyprus Economy is based upon the principles of mixed economy where the private initiative is particularly important. Due to the small size of the market, our economy is volatile and vulnerable to external shocks.  However, the Cyprus Economy possesses important comparative advantages which give the economy the ability to be easily adjusted to the rapid changes of the world market. Such advantages are the free competitive markets, the high educational level of the labor force, the macroeconomic stability and the geographical location of Cyprus.

Growth Rates

The growth rate of the Gross Domestic Product (GDP) expanded by around 4.2% for the 1999, compared with 5% and 2.5% in 1998 and 1997 respectively. The structure of the Cyprus Economy has changed dramatically since 1960.  During the sixties agriculture was the sector with the highest contribution to GDP whereas in the seventies and early eighties the manufacturing sector contributed the most to GDP.  Since then the services sector became the engine of growth for the Cyprus Economy, with highly chronological share of distribution into the GDP.

The rapid expansion of the tertiary sector is attributed to the following factors: The communication, financial and business service sectors were did particularly well. The rapid progress in the information and communication technology resulted in multiple positive effects in the investment sector of the economy. During 1999, the Cyprus stock exchange’s CSE index stood the higher point of its measurement scale. 

Inflation

Increased public spending during the early nineties caused inflation to reach its peak in 1993 which was 6.5%. Until 1995 it fell by almost 4% to 2.6%. In 1996 and 1997 we had an increase of 3.0% and 3.6% respectively, whereas in 1998 it is estimated to be 2.5%. In 1999 the inflation rate estimated to be 2.9%. The main reasons for this are the stronger dollar and the higher oil price. The stronger relationship between the dollar and the euro caused losses to the national currency, because main "trade partners" of the country where outside of the euro-zone.

Unemployment

The Cyprus labor market is characterized by conditions of full employment.  More specifically it is estimated that during 1999 there was a decrease in the unemployment rate from 3.3% in 1998 to 3.1% in 1999 (or from 10.400 persons in 1998 to 9.500 persons in 1999).  It is important to mention that these percentages are more favorably compared with the corresponding figures in European Union members’ states.

Current Account Balance

It is estimated that during 1999 we had a deficit in the current account of £164 millions compared to £186 millions in 1998.  This worsening is due to the decrease of revenues from import taxes on European commodities and the increase of imports from £1807.06 million in 1998 to £1867.9 million in 1999.   Increase in revenues from tourist sector is not enough to offset the decrease caused from other factors mentioned above. As a consequence fiscal deficit is distending and it is estimated to be 6.5% of GDP in 1999 compared to 5.7% of GDP in 1998. Finally the public debt as percentage to GDP is estimated to be 6%.

Main economic indicators of the Cyprus Economy, 1994-1999

Source: Economic Review-Planning Bureau Ministry of Finance