Finland Times

 

The economic crisis Russia is going through may undermine Cyprus' prospects for returning to growth after four years of recession, according to several experts.

     

Analysts and officials in Nicosia say that the tumble of the ruble as a result of western economic sanctions, dropping oil prices and Russian President Vladimir Putin's drive to repatriate Russian capital may delay the recovery of the bailed-out Cypriot economy.

     

"This combination makes it difficult to make a firm prediction," said Sofronis Clerides, economics professor at the University of Cyprus.

     

The University's Economic Research Center projected a continuation of the country's recession into 2015, predicting a 0.4 percent GDP decline as a result of external factors, including economic developments in Russia and weak recovery in Europe.

     

Cypriot tourism officials expected up to 650,000 Russian tourists in 2014, an increase of about 8 percent over the previous year. But actual arrivals in November and December were down 20 percent compared to 2013.

     

"We are working on the assumption that the problems the Russian economy is faced with and the depreciation of the ruble will affect arrivals from Russia. However, we cannot make accurate estimates as Russians are last-minute planners," said Cyprus Tourism Organization (CTO) spokesman Pantelis Ioannides.

     

Cyprus has been in recession since mid-2011 and both international lenders and Cypriot authorities projected a modest recovery of the economy of between 0.5 and 1.0 percent in 2015.

     

But growth forecasts were made before the West imposed sanctions on Russia over Ukraine and before oil prices began to tumble, hitting the Russian economy hard.

     

The projections for the Cypriot economy were based on the expectation that tourism from Russia would increase slightly or remain at last year's level.

     

If predictions for even a small drop in Russian tourists prove accurate, the projected growth will be wiped out as income from tourism accounts for about 12 percent of Cyprus' GDP.

     

Russia's economic troubles started with western sanctions and were compounded by the sharp drop in oil prices to their lowest point in six years. With the ruble losing 40 percent of its value, many Russians may have to abandon plans for overseas vacations.

     

The sharp depreciation of the euro is not enough to offset the drop in the value of the ruble which would be a strong factor discouraging Russian travel.

     

Russian tourism represented about 30 percent of total revenue last year Cypriot hoteliers and restaurateurs and a marked drop in tourist arrivals would result in a considerable loss of income.

     

However, Ioannides said the CTO hopes to offset the loss by attracting more tourists from the British tourist market, Scandinavia and Germany.

     

To make things worse for the Cypriot economy, President Putin embarked in November on a campaign to convince Russian offshore companies to repatriate their assets and singled out Cyprus, a heaven for Russian oligarchs since the demise of the Soviet Union.

     

But not all analysts are in agreement with the doomsday scenario for Cyprus.

     

"There are moderating factors which may prove these predictions wrong," said economist and lawmaker Marios Mavrides.

     

He pointed to strong cultural and religious ties between Cyprus and Russia going back many centuries. Many Russian tourists combine their sun trek with visiting the numerous mountain monasteries.

     

Lawyer Andreas Neocleous, who heads the largest law office catering to Russian offshore companies and investors, said: "I am in a position to know that Russians have built strong ties with Cyprus and would be very reluctant to go. I don't think that Putin's drive will affect us in any marked way."