Economy expected to grow 4.1% GDP in 2022

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The Cypriot economy is expected to remain robust in 2022 as real GDP is projected to expand by 4.1%, according to the University of Cyprus Economic Outlook

According to the university’s Economic Research Centre (CypERC), GDP in Cyprus is estimated to have increased by 5.6% last year.

The current growth forecast for 2021 is higher than the previous forecast by 0.2 percentage points; the small upward revision resulted from stronger-than-projected growth in the third quarter.

During the second half of 2021, inflation accelerated due to rising international commodity prices and the strong recovery from the pandemic crisis.

CPI inflation is projected at 2.6% in 2022, an upward revision relative to the projection in the October issue (1.8%).

The growth forecast for 2021 is the same as the Central Bank (5.6%) and close to the European Commission (5.4%).

For 2022, the growth forecast is similar to the European Commission (4.2%) and slightly higher than the projection published by the Central Bank (3.6%).

CypERC said the drivers of the outlook include the robust recovery from the pandemic crisis, strong economic sentiment, supportive financing conditions and accommodative fiscal policy.

The latest COVID-19 wave, it is noted, though more aggressive in terms of the surge in infections, has not led to significant restrictions in economic activity, possibly weakening the link between growth and epidemiological conditions.

Nevertheless, new virus variants leading to new infection waves remain a key source of economic uncertainty and pose a major downside risk to the domestic and global outlook.

“New COVID-19 waves may intensify supply disruptions and amplify upward pressures on prices, especially international commodity prices, limiting growth prospects.

“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.

“Finally, overdue structural reforms dent economic confidence and dampen investment prospects.

“As economic and social activities adapt further to the pandemic, upside risks to the outlook may stem from stronger-than-anticipated domestic demand and external demand, especially for tourist services”, CypERC said.

Rising vaccination coverage widespread and frequent COVID-19 testing allow further normalisation, benefitting economic activity.

“Also, investments and reforms, particularly through the EU’s Recovery and Resilience Plan for Cyprus, are expected to affect output and employment positively.”