Despite the reduction in tariffs, in line with the Customs Union Agreement with the E.U. which came into effect in 1988, the Cyprus economy improved further during 1987-88. Average annual real GDP growth exceeded 7,5%, on the strength of continuing fast increases in tourist arrivals and resurgence of industrial exports.

Services continued to constitute the main pillar to growth and recorded an overall real increase of 7% in 1987 and 9.5% in 1988, their contribution to GDP stabilised around 64%. Significant growth was registered in the secondary sectors as well. Manufacturing grew by 8% in real terms, in 1987 and 7% in 1988, on account of the recovery of exports to the Arab markets, the further penetration in European markets as well as the increased spending by tourists. The period 1987-88 turned to be exceptional for the agricultural sector which, benefiting from favourable weather conditions, recorded real growth rates of 3,5% in 1987 and 11% in 1988.

The rapid output led to the further creation of a large number of new employment opportunities and consequently, to a decrease of unemployment to 2,8% in 1988. Inflation pressures remained moderate. The retail price index climbed from the exceptionally low level of 1,2% in 1986 to 2,8% in 1987 and 3,4% in 1988, reflecting mainly international trends.

Source: www.kypros.org