Philip Ammerman at the Cyprus Best Invest Conference, 17 October 2022
Updated: Oct 10, 2022
Philip Ammerman will present at the Cyprus Best Invest Conference on 17 October 2022. The subject of his presentation will be the “New Normal”. He will also moderate the panel on Investments in Innovations and New Technologies.
The Best Invest conference presents the investment and economic potential of Cyprus and related countries. In 2022 the event will focus on the Cyprus IT industry, fintech, regtech, energy, CASP regulation and venture investments.
Please feel free to contact us to arrange a meeting with Philip and a consultation on your investment needs in Cyprus or elsewhere.
A brief review of the New Normal follows.
Standard economic thought assumes that long periods of growth and prosperity are interrupted by recessions: consecutive quarters of declining economic growth. A cursory review of most gross domestic product performances certainly shows such a pattern. Below, we can see the GDP record of Cyprus (in current GDP). This shows a slight GDP decline in 2009 (following the 2008 global crisis); a marked decline in 2012-2014 (following the Cyprus banking crisis and bail-in) and a sharp decline in 2020 (as a result of COVID).
Figure 1: Cyprus GDP Growth and Contraction (current terms)
But what happens if the broad aggregate of GDP no longer reflects true economic performance? Can enterprises and individual consumers really use GDP and its implications to make decisions that reflect reality? Can we really measure real risk using standard economic measurement? Is our economic environment really so stable?
The answer is, increasingly, no. At least in headline GDP terms. We cannot assume that the past, ephemeral stability we have enjoyed will continue in the future.
When one assesses the true picture of economic and geopolitical challenges affecting Cyprus, it becomes clear that the households and enterprises are confronted with a series of structural (predictable) and unpredictable challenges that lead to diminishing economic performance and higher risk.
An example of high risk / reward events from the past few years that have affected Cyprus is indicative:
1999 Cyprus and Greek Stock Market Crashes; dot-com crash begins
2001 World Trade Towers destroyed; US invades Afghanistan
2003 US Invasion of Iraq
2004 Cyprus joins the European Union
2005 Orange Revolution in Ukraine
2006 Israel – Lebanon War
2008 Global Debt Crisis; Global Stock Market Crash
2010 Greek Debt Crisis formally begins; Greek public debt is consolidated; First Bail In
Arab Spring begins
2011 Mari Explosion in Cyprus
Civil War starts in Syria
Noble discovers oil and gas in Cyprus
NATO bombs government forces in Libya; Libya collapses
2012 Second Bail In Package in Greece; Greek Public Sector Involvement (PSI)
2013 Cyprus Debt Crisis and Bail-In; Liquidation of Popular Bank of Cyprus; Capital Controls
2014 Russia seizes Crimea; sanctions introduced against Russia.
2015 Alexi Tsipras elected in Greece; Capital Controls Introduced
Refugee Crisis: 1 million refugees cross into Greece from Turkey
2018 Cyprus Cooperative Bank Liquidation
Turkey prevents ENI from drilling in Cyprus territorial waters
2020 COVID-19 Pandemic Begins
Second Refugee Crisis from Turkey into Greece
“Al Jazeera Scandal”; Cyprus ends Citizenship by Investment Programme
Russian update to Cyprus Double Tax Treaty; Russian capital flight from Cyprus
2022 Russian Invasion of Ukraine; European Energy Crisis
Stock Market & Crypto Corrections
What has cushioned the economic impact of these events on the Cyprus economy, as measured by Cyprus GDP? The Keynesian approach taken by government spending.
In 1995, Cyprus public debt was € 3.7 bln while current GDP was € 7.6 bln, a debt:GDP ratio of 48%. Fast forward to 2021, and Cyprus public debt rose to € 24.3 bln, while GDP was € 23.4 bln, or a debt:GDP ratio of 104%.
Figure 2: Cyprus Public Debt and Cyprus Public Expenditure as %GDP
Similarly, in 1995, general government expenditure was € 2.4 bln on GDP of € 7.6 bln, a ratio of 31%. By 2021, general govnt expenditure had risen to € 10.3 bln on a GDP of € 23.4 bln, a ratio of 44%.
Let’s look at this in different terms: between 1995 and 2021, government debt rose by 560%; government expenditure rose by 340% and current GDP rose by 209%.
Change in Public Debt 560%
Change in Public Expenditure 340%
Change in Current GDP 209%
With such an increase in the state, and with such an increase in debt-financed public expenditure, why is the rise in GDP so low?
In this current environment, we believe that official GDP figures no longer reflect a fully-accurate picture of economic growth or decline. Instead, they begin to reflect the impact of distortions in what should be a normally healthy economy.