The uptick in sentiment in the services sector in August was mainly driven by improved business responses to last quarter and next quarter turnover
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In August 2024, the economic climate improved, according to the Center for Economic Research (CEC), of the University of Cyprus, with the Economic Situation Index (ESI) increasing by 1.5 points compared to July 2024. The ESS increase was result of the strengthening of the business climate in the services, construction and manufacturing sectors.
According to the JIT, the uptick in sentiment in the services sector in August was mainly driven by improved business responses to last quarter and next quarter turnover. In the construction sector, sentiment strengthened for the second consecutive month due to more favorable responses to ongoing projects and more positive employment estimates.
The strengthening sentiment in manufacturing was mainly driven by improved expectations for next quarter's output, while the small decline in retail sentiment in August was a result of the worsening current situation and lower estimates for next quarter's sales.
In August, businesses revised up their turnover expectations for the next quarter, while lowering their employment estimates, but keeping them fairly positive. Expectations for next quarter's selling prices fell further in August.
At the service sub-sector level, business sentiment improved in financial activities, while remaining strong in professional services. The climate is still low in accommodation and catering activities. In other services, business confidence strengthened in August.
In retail trade, business sentiment weakened due to a deterioration in the current situation and expectations. In August, responses to last quarter sales as well as assessments of current inventories worsened, weighing on sentiment. Compared to July, business estimates for the next quarter regarding sales and orders to suppliers were less optimistic. Estimates of the number of employees fluctuated at the positive, albeit low, levels of previous months. Expectations for next quarter's selling prices were revised down in August.
In the construction sector, business sentiment strengthened for the second consecutive month due to further improvement in the current situation and expectations. In August, responses to ongoing projects improved again and assessments of recent construction activity remained positive, although lower than those of the previous two months.
Businesses in August remained upbeat about their hiring numbers in the next quarter, revising their estimates upward for the second month in a row. Sales price expectations edged lower for a third straight month.
In manufacturing, business sentiment rose as expectations improved. In August, business responses to last quarter's output worsened and assessments of current orders continued to trend downward. Conversely, downward pressures on finished goods inventory levels strengthened in August, supporting sentiment.
Business estimates for next quarter's output were revised upward, while employment expectations remained steady at the positive levels of June and July. After four months of declines, sales price expectations were revised upwards in August, with the variance of manufacturing expectations rising relative to other sectors. However, expectations for sales prices in manufacturing remain lower compared to those in other sectors.
On the other hand, in August, consumer sentiment weakened further due to a deterioration in all its components, i.e. assessments of recent household financial situation, estimates of the future state of households and the country, and intentions for major purchases.
Additionally, in August, consumer perceptions of price movements over the past 12 months trended upward, reaching a 10-month high. At the same time, expectations for the path of prices over the next 12 months were revised upwards, reversing the downward trend of the previous three months.
Consumers' intentions to spend on large purchases weakened, while the possibility of saving was further strengthened.
The JIT notes that the strengthening of economic confidence in August is accompanied by increased uncertainty. The Economic Uncertainty Index rose significantly in August due to external and domestic factors. The ongoing geopolitical tensions, mainly in the Middle East, the strong volatility in the international markets in August which reflects concerns about the global economic activity, but also reversals in major investment projects in Cyprus (mainly related to the energy infrastructure) are factors of increasing uncertainty between in businesses and households.
The recording of the economic climate in Cyprus is carried out through the participation of the Center for Economic Research of the University of Cyprus (KOE), in collaboration with the company RAI Consultants Ltd, in the European program Joint Harmonized European Union Program of Business and Consumer Surveys. The project is financed by the European Union, the Ministry of Finance and the University of Cyprus.
