DBRS Morningstar report assesses economic risks for Cyprus and Greece amid Middle East conflict

A report by the rating agency DBRS Morningstar indicates that Cyprus and Greece face heightened economic risks due to the conflict in the Middle East. Tourism contributes 6.6% to the gross value added of Cyprus and 7.3% to that of Greece, significantly exceeding the 2.9% European Union average. While both nations rely heavily on tourism and shipping, DBRS Morningstar concludes that Cyprus is more vulnerable due to its geographical proximity to the conflict zone. Current data shows that Cyprus is already experiencing a steeper decline in travel demand and higher cancellation rates compared to Greece. The agency warns that this could negatively impact SME performance, household incomes, and property prices. Furthermore, Cypriot banks are considered more susceptible to credit risk because of their higher loan concentration in the tourism sector. Conversely, Greek banks are viewed as more resilient, aided by internationalized and secured shipping loans. Despite these challenges, the report emphasizes that banking systems in both countries maintain strong profitability and solid capital buffers to absorb potential shocks.