Nicosia, Cyprus. Central Bank of Cyprus Governor Christodoulos Patsalides said productivity must be placed at the heart of every reform as Cyprus and Europe face slowing growth and persistent structural pressures. He said productivity gains strengthen growth potential.
Productivity focus in reforms
Speaking at a conference of European Independent Fiscal Institutions in Nicosia, Patsalides said reforms that lack a productivity focus risk falling short of delivering durable economic outcomes.
Impact of recent shocks and monetary policy
Addressing the conference, titled “Fiscal management in times of change: initial responses”, Patsalides said Europe has endured an exceptional sequence of shocks in recent years. He said the European Central Bank’s decisive interest rate increases to curb inflation had carried a cost, adding that increased debt and reduced fiscal space are emerging as Europe needs investment in defence, technology and the green transition.
Debt risks and bond market pressures
Patsalides warned that high debt and strained public finances could trigger a repricing of sovereign risk and create pressure in global bond markets.
Policy choices and fiscal response
He said European economies have shown resilience but that growth remains subdued and structural challenges persist, adding that the current environment is placing further strain on Europe’s growth model and increasing the urgency of policy choices. Patsalides said governments should prioritise productivity-enhancing investments and targeted spending that improves competitiveness, supports potential output and strategic priorities, while consolidating public finances.
How should you assess the role of productivity-enhancing investments in fiscal policy during periods of subdued growth?