Excerpt of Article -- Economic Outlook for 2000-2001

The recovery that started in 1998 is maturing and growth prospects over the medium term remain positive. But the longer-term prospects of the Cyprus economy remain interlinked with policies aimed at reversing the decline in competitiveness, upgrading the tourist product, and promoting broad market liberalization. Improvements in these areas in recent years should not divert the focus of economic policy. The persisting institutional rigidities will not help the economy sustain higher growth over the longer term.

Following a year of rapid growth in 1999 and unprecedented activity in the Cyprus Stock Exchange, excesses were unavoidable. A correction was thus necessary in order to bring stock prices back in line with their underlying fundamentals and sustainable growth prospects. The downward trend of the general index that characterized much of December and which continued into January-March 2000, carried precisely that stigma: corrections of the excesses of a long and sustained upward trend.

The prospects for the remainder of 2000 will depend on a variety of interrelated factors: the economic environment, political developments, corporate restructuring and continued liberalization. Measures to liberalize the economy will continue to intensify the competitive pressures in the domestic market forcing upon the corporate sector a fundamental restructuring of the productive base and strategic reorientation. The realities of acute competition and market liberalization create a new corporate culture, which sets shareholder value at its core. Thus the economy is likely to witness an aura for mergers and takeovers and an increasing interest to expand overseas, mainly in Greece. By Ioannis Tirkides, Head Research, Laiki Investments.