2013-09-18 08:52:24 - New Country Reports research report from Business Monitor International is now available from Fast Market Research
BMI Political Risk Ratings
Political risk remains low given the country's strong democratic credentials in the modern era and good relations with its neighbours. That said, the political system has become more complicated due to the rise of five-party politics within the Bundestag. The current electoral system will normally produce two-party majority governments with up to four parties represented in parliament. However, the recent rise of the Green party shows that voter sentiment is shifting, creating a more complicated coalition structure. This could considerably complicate national-level policymaking for years to come as different interest groups grow in political strength.
Full Report Details at
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Partial Table of Contents:
Major Forecast Changes
Chapter 1: Political Outlook
BMI Political Risk Ratings
Government's Reform Commitment To Be Tested
- The government of Cypriot President Nicos Anastasiades will increasingly encounter resistance to additional fiscal consolidation measures and structural reforms. Although some stability of the banking sector may be restored in the foreseeable future, confidence in the government's measures - particularly in light of continuing capital controls - will likely begin to fade, making future austerity measures more difficult to push through the legislature.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Cyprus Problem, Economy Remain Dominant Issues
- Cyprus celebrated 50 years of independence on October 1 2010, yet the island remains divided along ethnic Greek and ethnic Turkish lines. Settlement talks between the leaders of the ethnic-Greek South and ethnic-Turkish North have been going on for several years with little in the way of progress, and the window of opportunity for finding a resolution is closing. Economic policy will also be at the forefront of discussion in the coming years, as the government struggles to deal with major fiscal austerity and an economic depression. In both cases, the downside risks to long-term stability are limited by strong democratic institutions operating within the EU framework.
Chapter 2: Economic Outlook
BMI Economic Risk Ratings
Major Pain Still Ahead
- Latest macroeconomic data reaffirm our belief that the Cypriot economy will continue to undergo a painful rebalancing process, which will see the economy contract by 9.0% in 2013. Although there are signs that the implosion of domestic demand is already seeing external imbalances unwind, we believe that it will be several years before real GDP growth returns to positive territory.
TABLE: GDP BY EXPENDITURE
Balance Of Payments
Painful Rebalancing On The Way
- Cyprus' external imbalances will begin to unwind in earnest over the coming quarters, with the current account set to move from a 6.5% of GDP shortfall in 2012, to a moderate surplus by 2015. We are already noticing signs of a more rapid deleveraging in light of external financing constraints leading to a collapse in imports in the current account and a gradual repayment of loans in the financial account. However, given that country remains economically uncompetitive, a prolonged internal devaluation will be unavoidable in the absence of a nominal exchange rate devaluation over the coming years.
TABLE: CURRENT ACCOUNT
Public Finances By No Means Out Of The Woods
- Although we continue to expect some fiscal deterioration in 2013, Cyprus' public finances will begin to gradually improve over the coming years as expenditures are reined in. Nevertheless, this will not guarantee success in reducing public debt (as a percentage of GDP), since nominal GDP growth is going to remain firmly negative over the next few years. Crucially, we believe that the sovereign will require additional bailout funds, with a busy debt repayment schedule over the coming three years.
TABLE: FISCAL POLICY
TABLE: TOTAL PUBLIC DEBT FORECASTS
Rebalancing: Eurozone Risks Shifting From One Bad Equilibrium To Another
- Both internal and external trade rebalancing have gained traction in the eurozone. However, both forms of rebalancing are suboptimal and risk anchoring the euro area to a lower and more unstable economic growth trajectory over the medium to longer term.
Chapter 3: 10-Year Forecast
Cypriot Economy To 2022
Entering A Lost Decade
Full Table of Contents is available at:
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