Real GDP growth is projected at 5.4% in 2021 and 4.1% in 2022, upward revisions mainly driven by the strengthening recovery during the second quarter of this year, according to the University of Cyprus.
The university’s monthly economic outlook for October, compiled by the Economics Research Centre, cited further improvements in leading indicators in the third quarter and upward revisions in National Accounts data.
The UCy research said downside risks to the outlook could stem from new waves of COVID-19 infections because of new virus variants, such as Delta-plus, and relatively lower vaccination coverage among younger age groups.
It said the pandemic-induced supply disruptions and sustained upward pressures in international commodity prices might dampen growth prospects, as Cyprus’s import dependency, especially on oil, is very high.
“Moreover, downside risks could emerge as a result of the high levels of public and private debt that may render the Cypriot economy vulnerable to tightening financial conditions and changes in investor sentiment,” the outlook said.
NPLs still high
Despite continued progress, the stock of non-performing loans (NPLs) in the economy is still relatively high, clouding the outlook.
“Fiscal pressures may arise, for example, because of the persistence of the pandemic, increased financing needs relating to the General Healthcare System and the State Health Services Organisation (OKYPY), as well as inflationary pressures.
“On the upside, investments and reforms, particularly through the Recovery and Resilience Plan for Cyprus, are expected to positively affect output and employment.
“A stabilisation of COVID-19 infections and further progress in vaccination coverage globally may further improve external and domestic economic conditions.
“More specifically in Cyprus, higher vaccination coverage among younger age groups and a better-than-anticipated tourist season could result in a stronger-than-projected outcome.
“In 2021 and 2022, CPI inflation is projected at 2.3% and 1.8%, respectively.”