COVID19: Cyprus economy weaker-than-expected rebound

Uncertainty looms over Cyprus’ economic future as it prepares to exit a prolonged crisis brought on by the pandemic with a less vibrant rebound from recession in 2021.

The Central Bank of Cyprus (CBC) said in its medium-term forecasts on key macroeconomic figures that the country “continues to be characterised by an unprecedented uncertainty due to the pandemic”.

The CBC said Cyprus is no exception to the trend and course of economies of the euro area, which is why since the pandemic Eurosystem forecasts are made using three scenarios, basic, mild, and adverse.

This year’s recession is predicted at -6.2%, while a relative GDP recovery of 4.1% is expected in 2021, followed by growth rates of 3.4% and 2.7% in 2022 and 2023, respectively, according to the Central Bank.

The forecasts of the baseline scenario have Cyprus’ GDP reaching pre-pandemic levels in the third quarter of 2022.

Regarding inflation, according to the baseline scenario, it is expected to be -1.2% in 2020 compared to 0.5% in 2019.

For 2021-23, inflation is expected to gradually increase, reaching 0.5% in 2021, 0.9% in 2022 and 1.4% in 2023 depending on GDP developments.

Compared to CBC’s June 2020 forecast, a milder recession is expected for the current year and a lower GDP growth rate for 2021. This applies to all three forecast scenarios.

For 2020, the GDP reduction in Q3 was relatively limited compared to what was expected at the early stages of the pandemic but exceeds the largest GDP contraction expected in Q4 due to the resurgence of the virus in the autumn.

The Central Bank said the gradual recovery expected in 2021 will be weaker than expected in June, partly because of the second wave of the pandemic.

The baseline scenario for a recession for 2020 is -6.2%, while in the optimistic scenario is -5.5% and the adverse one -6.7% GDP.

Recovery for 2021 is projected to be 4.1% in the baseline scenario, while in the other scenarios its 4.8% and 1.8%, respectively.

For 2022-23 in the basic scenario for positive economic growth rates are projected at 3.4% and 2.7%, respectively.