Cyprus Economy - overview

Economy - overview: The area of the Republic of Cyprus under government control has a market economy dominated by the service sector, which accounts for 78% of GDP. Tourism, financial services, and real estate are the most important sectors. Erratic growth rates over the past decade reflect the economy's reliance on tourism, which often fluctuates with political instability in the region and economic conditions in Western Europe. Nevertheless, the economy in the area under government control has grown at a rate well above the EU average since 2000. Cyprus joined the European Exchange Rate Mechanism (ERM2) in May 2005 and adopted the euro as its national currency on 1 January 2008. An aggressive austerity program in the preceding years, aimed at paving the way for the euro, helped turn a soaring fiscal deficit (6.3% in 2003) into a surplus of 1.2% in 2008, and reduced inflation to 5.1%. This prosperity will come under pressure in 2009, as construction and tourism slow in the face of reduced foreign demand triggered by the ongoing global financial crisis. Growth is expected to slow to less than 2%, which would be its lowest level since 2003. As in the area administered by Turkish Cypriots, water shortages are a perennial problem; a few desalination plants have been added to existing plants over the last year and are now on line. After 10 years of drought, the country received substantial rainfall from 2001-04. Since then, rainfall has been well below average, making water rationing a necessity.

Definition: This entry briefly describes the type of economy, including the degree of market orientation, the level of economic development, the most important natural resources, and the unique areas of specialization. It also characterizes major economic events and policy changes in the most recent 12 months and may include a statement about one or two key future macroeconomic trends.

Source: CIA World Factbook - Unless otherwise noted, information in this page is accurate as of September 17, 2009