Cyprus in the Global Financial Crisis: How Lack of Banking Sophistication Proved an Advantage

Abstract

The impact of the global crisis on the financial sector has been equally mild in both parts of divided Cyprus, thanks largely to traditional banking systems with little dependence on international markets. However, both economies have experienced a negative impact on the real sector, mainly owing to the deterioration of the UK market. Developments in Russia for the south and Turkey for the north may also influence the impact. However, overall effects are expected to be harsher in the north, which is already in recession and lacks integration with international markets. In the south, real GDP growth is expected to slow in 2009. In the north, a second consecutive year of recession is expected.