Economic growth in Cyprus will slow to 2.1% in 2022, with inflation spiking at 5.3% due to the impact of the Russian invasion of Ukraine and western sanctions against Russia, the IMF said in its World Economic Outlook (WEO).
Since the January WEO, the IMF said the global outlook “has deteriorated, largely because Russia invaded Ukraine—causing a tragic humanitarian crisis in Eastern Europe—and the sanctions aimed at pressuring Russia to end hostilities.”
It said the new crisis unfolds when the global economy was on a mending path but had not yet fully recovered from the COVID-19 pandemic.
There was a significant divergence between the economic recoveries of advanced economies and emerging market and developing ones, while frequent and wider-ranging lockdowns in China—including key manufacturing hubs—have also slowed activity there and could cause new bottlenecks in global supply chains.
“The economic effects of the war are spreading far and wide—like seismic waves that emanate from the epicentre of an earthquake—mainly through commodity markets, trade, and financial linkages,” the Fund said.
It noted that Russia is a major supplier of oil, gas, and metals, and together with Ukraine of wheat and corn, the current and anticipated decline in the supply of these commodities has already driven their prices up sharply.
On the global economy, the IMF said that beyond the immediate humanitarian impacts, the war would severely set back the global recovery, slowing growth and increasing inflation even further.
The April WEO projects global growth at 3.6% in 2022 and 2023—0.8 and 0.2 percentage points lower than the January forecast.
“The downgrade largely reflects the war’s direct impacts on Russia and Ukraine and global spillovers.”
Concerning Cyprus, the IMF said real GDP growth would amount to 2.1% in 2022 from 5.5% last year and accelerate to 3.5% in 2023.
The 2022 projection is in line with the estimate announced during the IMF statement issued following the conclusion of the Article IV consultation with Cyprus the previous month.
However, inflation is estimated to spike to 5.3% in 2022 and will decline to 2.3% next year.
Unemployment in Cyprus will rise from 7.5% to 8.5% in 2022 and decline back to 7.5% next year.
The IMF said Cyprus’ current account deficit would reach -9.4% GDP this year and ease to -8.3% in 2023.