Cyprus is facing increased economic uncertainty due to regional conflicts, notably the outbreak between Israel and Gaza in October 2023. The Economic Policy Uncertainty (EPU) index hit a record high of 256.63, reflecting the impact of these conflicts on the nation’s economic stability.
Why Has Economic Uncertainty Increased in Cyprus?
The Economic Uncertainty in Cyprus has risen due to regional conflicts, particularly the outbreak between Israel and Gaza on October 7, 2023. The Economic Policy Uncertainty (EPU) index for Cyprus hit a record high of 256.63 in October, reflecting the nation’s proximity to these disturbances and the resulting impact on its economic stability.
Cyprus has entered a period of increased economic uncertainty, as evidenced by a significant rise in the Economic Policy Uncertainty (EPU) index. In October, the index soared to a new high of 256.63, up from 202.84 the previous month. This data was extracted from the latest report published by the Economic Research Centre at the University of Cyprus (CypERC).
The Impact of Regional Conflicts
The sudden surge in the index is primarily attributed to the recent conflict outbreak between Israel and Gaza on October 7, 2023. Cyprus’s geographical proximity to the area of conflict has exacerbated the sense of economic unpredictability, which is now clearly reflected in the sharp increase in the EPU index.
While Cyprus feels the tremors of nearby conflicts, the broader European EPU index has seemingly remained insulated from these events. This stark contrast underscores how regional disturbances can disproportionately affect the economies of neighboring countries.
Understanding the EPU Index
The EPU index, first introduced by economists Baker, Bloom, and Davis in 2016, aims to quantify economic uncertainty through a systematic textual analysis. By tracking the frequency of newspaper articles that include terms related to the economy, policy, and uncertainty, the index provides an objective measure of economic instability related to policy effectiveness.
CypERC meticulously constructs and monitors Cyprus’s EPU index, providing a valuable tool to understand the country’s economic climate. The EPU graph, with its peaks and troughs, offers a historical view of Cyprus’s economic stability, or the lack thereof. Pre-2008, the index suggested a relatively stable economic environment. However, the narrative shifted post-2008, with noticeable peaks in 2012 during a banking crisis, in 2020 amidst the Covid-19 pandemic, and more recently in 2022, following the Russia-Ukraine conflict.
Regional News and Economic Indicators
- The Cyprus Post has issued a warning about a rise in phishing scams, suggesting a need for greater vigilance in digital communications.
- The country is also making headlines for other reasons, including the state of humanitarian corridors and the fluctuating fortunes of cryptocurrency investments.
- The UK economy is facing its own challenges, as indicated by a decline in retail sales in the same month.
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Quick Recap
- Cyprus is facing increased economic uncertainty due to regional conflicts, notably the outbreak between Israel and Gaza in October 2023.
- The Economic Policy Uncertainty (EPU) index hit a record high of 256.63 in October, reflecting the impact of these conflicts on the nation’s economic stability.
- The surge in the EPU index is primarily attributed to the recent conflict outbreak between Israel and Gaza on October 7, 2023.
- Cyprus’s geographical proximity to the area of conflict exacerbates the sense of economic unpredictability, which is reflected in the sharp increase in the EPU index.
- The EPU index quantifies economic uncertainty through textual analysis of newspaper articles and provides an objective measure of economic instability related to policy effectiveness.
