06.10.2022
The Economic Policy Uncertainty Index (EPU) in Cyprus surpassed all previous records in April 2022, reaching a value of 364.8, according to a report by the Cyprus University Economic Research Center (CypERC).
The immediate previous high was recorded shortly after the outbreak of the Covid-19 pandemic in Cyprus, when the price fell from 175.68 in February 2020 to 345.27 in April 2020.
The Economic Policy Uncertainty Index is used as a tool to quantify uncertainty, which facilitates further analysis and makes it possible to determine its impact on the economy and, therefore, evaluate current and future economic policies.
According to the report, the EPU index contains data for almost 30 countries, including 11 European countries, to which Cyprus was recently added, with data prepared by the Center for Economic Research of the University of Cyprus.
As the center explained, the EPU index weighs information monthly by referring to newspaper articles containing certain keywords, such as articles that use the words “economy”, “uncertainty” and “reform or deficit” at the same time.
While studying how domestic and international events affect the price of the EPU index in Cyprus, the center noted its rapid increase in April 2020, when it reached 345.27, after the first cases of COVID-19 and the introduction of restrictive measures in the country.
In addition, after the turmoil in the global economy, primarily due to the war in Ukraine, the price increased further to 364.80 in April 2022.
Estimates from other countries, including Cyprus, show that the increase in uncertainty primarily affects investment, while the effects on GDP and employment are also significant, estimated at around 1 percent and 0.5 percent, respectively.
In the case of Cyprus, this appears to have a negative impact on productivity, investment and consumption. Conversely, the impact on unemployment was seen as positive. The effects of high uncertainty are projected to spread beyond one year, albeit at a decreasing rate as we move forward.
For comparison, the publication notes that in March 2013, when the haircut of bank deposits (bail-in) was introduced in Cyprus, the index price was 290.97.
At the same time, in December 2012, the EPU index was 240.34, while the average value of the index in the period before the global financial crisis (October 1999 – December 2008) reached 85.58.
Moreover, the German Uncertainty Index reached 785, while its previous high was 598, recorded in December 2021, possibly due to the increase in the number of cases of Covid-19, while in March 2020, at the beginning of the pandemic, it reached 498.
The European EPU6 index reached its highest value in 2016 due to the Brexit referendum, where it was 433, and the next highest value occurred in March 2022 with a value of 396.
The research center notes that the growth of the uncertainty index, both in Cyprus and in other countries, has reached historically high values. However, he added that this measurement serves to assess the extent and duration of its impact on GDP, consumption, investment and employment. In addition, the center explained, the index also serves to conduct a more effective economic policy.
