According to the University of Cyprus Economics Research Centre, the island’s GDP growth is projected at a slower 3.3% for 2021, accelerating to 3.6% next year.
April’s growth forecast for 2021 was revised downwards from February (3.7%) due to the smaller-than-projected contraction in GDP in 2020 and impediments to economic activity caused by the January lockdown.
In 2022, growth is projected to strengthen to 3.6%.
The 3.3% growth forecast is close to the estimates published by the European Commission (3.2%) and slightly higher than the projection given by the IMF (3.0%).
Moreover, for 2022, the growth forecast is more optimistic than the European Commission (3.1%) but slightly lower than the IMF (3.9%).
Economists said uncertainty about the outlook remains elevated because of pandemic-related factors, namely the fast rise in COVID-19 infections following the reopening of the economy in March, the presence of new variants, and the pace of vaccinations.
Regarding downside risks, they stem from setbacks to reopening of economic activities and renewed pandemic containment measures.
Other downside risks are also associated with the path of external demand for tourist services that depend on the epidemiological conditions, including vaccinations, in Cyprus and abroad.
A slower vaccination pace and new waves due to variants may adversely affect domestic and external economic conditions.
Additional downside risks relate to pressures on public finances and a possible re-escalation in NPLs as the pandemic persists.
UCY said slow progress in implementing structural reforms and uncertainties around the foreclosure framework might undermine the country’s credibility, renew vulnerabilities and weigh on the growth prospects.
“On the upside, a faster-than-expected vaccination pace in Cyprus and the EU, leading to a steady improvement in the epidemiological conditions, could boost confidence and demand,” the UCY outlook said.
“The positive effects of domestic and EU pandemic-related support programmes on activity may turn out stronger than those reflected in published data.
“In 2021 and 2022, CPI inflation is projected at 0.9% and 1.5%, respectively, as activity is expected to recover.”
In 2021, CPI inflation is projected at 0.9%; the forecast for inflation remained broadly unchanged from February (0.8%).
Next year, inflation is forecast to accelerate 1.5% as growth strengthens.
There remains “considerable uncertainty” as economic outcomes hinge on the course of the pandemic and the pace of vaccinations”, said, economists.