UCY predicts strong economic recovery beyond 2022

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The Cypriot economy is projected to record strong GDP growth over the next two years after a pandemic-induced 2020 contraction.

A gradual return to normalcy and an increase in vaccination coverage are expected to support a healthier economy, said an outlook by the University of Cyprus Economic Research Centre.

At the same time, it warns of possible dangers for the country’s credit rating as the pandemic continues.

Real GDP growth in Cyprus is projected at 3.7% in 2021 and 3.8% in 2022.

Accordingly, the growth forecasts have been revised upwards relative to the forecasts in the previous issue.

The upward revisions were mainly driven by the pickup in real activity signalled by improved business and consumer confidence indicators.

Downside risks to the outlook stem from setbacks to the gradual normalisation of activities due to new waves of COVID-19 infections, new variants and delays in the vaccination coverage, particularly among younger age groups.

Downside risks are also associated with the demand for tourist services.

It said as the pandemic persists, downside risks may emerge as a result of the high levels of public and private indebtedness in conjunction with delays in key structural reforms and uncertainty around the foreclosure framework.

“Upward pressures on public finances and NPLs, as the pandemic evolves, may undermine the country’s credit rating position and weigh on banks’ balance sheets, limiting the growth prospects.”

On the upside, a pickup in the pace of vaccinations in Cyprus and abroad, leading to improvements in the epidemiological conditions, could boost demand, especially for tourist services.

“The implementation of Cyprus’s Recovery and Resilience Plan is expected to directly affect domestic activity and employment through higher investment and enhance the country’s growth potential via reforms.”

In 2021 and 2022, CPI inflation is projected at 1.6% and 1.8%, respectively, as demand recovers.