Greece and Cyprus are more exposed than most EU economies to geopolitical shocks from the Middle East because of their heavy dependence on tourism and shipping, ratings agency Morningstar DBRS said in a new report.
The agency said disruptions to shipping routes and air travel are pushing up costs and weighing on freight rates and tourist flows, with Cyprus appearing more vulnerable due to its proximity to conflict zones.
DBRS warned that credit risks for banks are also rising, noting that Cypriot banks face more immediate downside risks because of their high concentration of loans to the tourism sector. Even so, it said banking systems in both countries remain profitable and well‑capitalized.
Tourism and shipping account for a significantly larger share of economic activity in Greece and Cyprus than in most EU states, the report said.
Tourism’s impact extends beyond hotels and restaurants to transport, entertainment and private consumption, given the large share of the workforce employed in the sector.
The agency said recent events are likely to hit tourism, which has been a key growth driver in both economies. The impact is expected to be stronger in Cyprus due to its geographic location.