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DBRS cuts Cyprus’ GDP growth by 0.7% due to Ukraine war

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Rating Agency, DBRS Morningstar, slashed Cyprus’ baseline growth rate by 0.7% for 2022, citing the deteriorating outlook following Russia’s invasion of Ukraine.

In its updated sovereign baseline scenarios, the Canadian rating agency said Cyprus’ growth rate will reach 3.4% compared to 4.1% in its March projection and 3.5% in 2023, up from the previous projection of 3.3%.

DBRS maintained its projection for unemployment unchanged at 6.9% for 2022, with the rate at 6.8% next year, up from the previous projection of 6.4%.

“Since our March update, near-term growth outlooks have deteriorated across the majority of our rated sovereigns,” DBRS said.

“European growth projections for 2022, in particular, have been cut due to the impact of the Russian invasion of Ukraine, the resulting higher pressures on inflation and the additional disruptions in supply chains.

“With a few major advanced countries already close to neutral policy rates, we expect the tightening cycle will have an impact on demand growth in the next 6-12 months.

“This is likely to ease inflationary pressures, but also increase the risk of a technical recession as borrowing costs increase and as some companies shed labour in response.”

DBRS also warned that high commodity prices will likely persist as the conflict in Ukraine continues and could further dampen growth prospects going into 2023.