EIU sees Cyprus inflation at 1.7%

The Economist Intelligence Unit (EIU) has forecast that the harmonised inflation for 2007 is expected to reach 1.7% (vs. 2.0% from the previous estimate), while for 2008 inflation is expected at 3.6% (vs. 2.0% from the previous estimate), according to the August Country Report on Cyprus.

This upward revision stems from higher energy prices, the continuous credit expansion, the elimination of the positive impact from lower taxation and prices on automobiles, and the impact from Euro adoption.

EIU analysts expect local GDP growth for 2007 to reach 3.6%, underpinned by private consumption. For 2008, analysts forecast a deceleration in GDP from 3.6% to 3.4% as the impact of the tax reformation for automobiles is expected to be lower.

EIU analysts also expect the current-account deficit to rise to 5.9% of GDP in 2007 (vs 4.9% previously estimated) and 4.8% in 2008 (vs. 4.6% previously estimated).

Local interest rates are expected to remain stable at 4.5%, as analysts anticipate that the ECB would raise Euro raise in 2H07 to 4.5%.