Cypriot GDP is projected to recover by 3.8% in 2021, following a contraction of 5.1% last year, according to the Cyprus Central Bank’s economic bulletin.
In 2022 and 2023, GDP is expected to grow by 3.1% and 2.5%, respectively, marginally lower than the previous forecasts in December 2020.
The CBC said the first quarter of 2021 saw a slight contraction in economic activity of 1.6% due to lockdown measures to address the pandemic.
GDP contraction in 2020 by 5.1% is due to all sub-categories of expenditure, except for public expenditure, which recorded an increase.
Regarding the labour market, the impact of the pandemic was negative but smaller compared to the impact on GDP due to government support for employees and businesses.
The unemployment rate is expected to increase to 8% in 2021. It was 7.6% in 2019.
“Monetary and fiscal policy measures taken to enhance liquidity in the economy have greatly mitigated the pandemic’s effects on domestic bank deposits and lending of the private sector,” said the report.
The annual growth rate of domestic private sector bank deposits accelerated in March to 3.6% from 2.5% in 2020.
It was mainly due to the drop in consumption because of restrictions to curb the pandemic.
Net loans to the private sector increased from Q2 2020, reaching 3.9% in March from 0.4% in June 2020.
Non Performing Loans are expected to rise temporarily in 2021 due to the pandemic.
However, they are expected to drop in 2022-2023, given the macroeconomic developments and the ongoing efforts of banks to consolidate their balance sheets further.
Inflation is expected to rise to 1.1%, compared to -1.1% in 2020, due to the increase in oil prices and, to a lesser extent, in services prices.
In the years 2022-203, further price increases are expected.
As a result, inflation is expected to be 0.7% in 2022 and reach 1% in 2023, mainly affected by the projected increase in GDP and salaries and the rise in services prices in the context of a gradual recovery of the tourism sector.
“The forecasts are marked by significant uncertainty due to volatile epidemiological data of the coronavirus pandemic.”