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CΙ Rating Agency upgrades Cyprus’ Long-term rating to “BBB” with positive outlook

Rating Agency Capital Intelligence Ratings (CI) has upgraded Cyprus’ Long-Term Foreign Currency Rating (LT FCR) and Short-Term FCR (ST FCR) to ‘BBB’ and ‘A2’, respectively, from ‘BBB-’ and ‘A3’, maintaining a positive outlook.

The Limassol-based regional rating agency cites the continued improvement in the island’s public finances, persistent budget surpluses and rapid decline of public debt.

“The upgrade reflects the continued improvement in the public finances, including persistent budget surpluses and a rapid decline in general government debt, with the debt to GDP ratio projected to drop below 60% in 2026,” CI ratings said.

According to the agency, the government continues to manage its debt maturity profile in order to reduce refinancing risks while maintaining an increasing cash buffer to counter short-term shocks and external adversities.

“The upgrade takes into consideration the significant decline in macro-financial imbalances, with the size of the banking sector declining to around 200% of GDP, and the cumulative debt overhang in the non-financial corporate and household sectors halving in recent years,” CI added.

The agency also highlighted “the demonstrated resilience of the Cypriot economy against increasing geopolitical risk factors, as well as the significant progress made in strengthening bank balance sheets by clearing up non-performing loans (NPLs) and reducing reliance on wholesale and cross-border funding.”

“As a result, government contingent liabilities from the banking sector have declined markedly in recent years,” CI said.

Furthermore, CI views that the targets outlined in the government’s medium-term debt strategy for 2024-26 are attainable and continue to ensure debt sustainability.

According to the agency, the general government budget performance remained very strong in the first seven months of 2024, with the budget position (on a cash basis) posting a higher than projected overall surplus of 2.2% of GDP (compared to 1.2% in 2023).

“As a result, CI expects the general government budget position to post a surplus of 2.9% of GDP in 2024, despite the adjustment of public sector wages,” the agency said.

Noting that short-term refinancing risks continue to decline, CI said that this is due to the government’s sound fiscal management, favourable debt maturity structure, and low gross financing needs (3.7% of GDP in 2024), as well as the prudent building of cash buffers of almost 10% of GDP that cover over 200% of gross financing needs for at least the next 12 months.”

The Poorest US States Are Wealthier Than Major European Economies

Some of the least affluent states in the United States are outpacing major European economies in terms of GDP per capita, with Mississippi leading the charge. But will this hold true in 2025?

Key Facts

As of the third quarter of 2024, Mississippi’s GDP per capita was €49,780, nearly matching Germany’s €51,304. The US state sits comfortably above several major European nations, including Spain, Italy, and France.

Following Mississippi in the rankings are West Virginia, Arkansas, Alabama, and South Carolina, all of which have higher GDP per capita than economies like Spain and Italy.

On the flip side, the wealthiest areas in the US—New York and the District of Columbia—boast significant GDPs, with New York’s reaching €107,485 and the District of Columbia’s soaring to €246,523.

When compared to European economies, the GDP per capita ranges from €15,773 in Bulgaria to €125,043 in Luxembourg. The EU’s average is €40,060, while the US surpasses that with an average of €80,023. Among Europe’s largest economies, Germany leads with €51,304, followed by the UK at €48,441, France at €44,365, Italy at €37,227, and Spain at €33,070.

What To Watch For?

The gap in economic output narrows when considering purchasing power parity (PPP), which adjusts for cost-of-living differences. Nevertheless, the US continues to outpace the EU and the UK, with the exceptions of Luxembourg and Ireland—both of which benefit from unique economic factors like Luxembourg’s foreign employer-driven growth and Ireland’s tax strategies aimed at attracting multinational companies.

While GDP captures total economic output, PPP provides a more accurate reflection of living standards, adjusting for the varying costs of goods and services across countries.

Germany’s Economic Struggles

Germany, Europe’s largest economy, faces its own set of challenges. The EU’s latest economic forecast predicts a further decline of 0.1% in 2024, after a 0.2% dip in the first half of the year. This follows a 0.3% contraction in 2023, marking the second consecutive year of negative growth. However, a recovery is on the horizon, with GDP expected to rise by 0.7% in 2025 and 1.3% in 2026. Despite this optimistic outlook, the ongoing uncertainty has led to decreased investment, lower consumption, and an increase in the unemployment rate, which climbed 0.5% to 3.5% between September 2023 and September 2024.

This situation places pressure on European economies, while some of the poorest US states continue to outperform their continental counterparts. As we look ahead, it will be fascinating to see whether the trend persists into 2025 and beyond.

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