DBRS downgrades Cyprus’ growth outlook

Rating agency DBRS Morning Star has downwardly revised Cyprus’ growth outlook again amid gloomier forecasts for the global performance considering soaring inflation and heightened uncertainty due to the Ukraine war.

In its updated forecasts, the agency reduced Cyprus’ growth prospects for this year by 0.2 percentage points to 3.2%, with the growth outlook for 2023 slashed by 0.7 percentage points to 2.8%.

In its June forecast, DBRS Morning Star said it expected growth to reach 3.4 and 3.5% in 2022 and 2023, respectively.

“Baseline forecasts are becoming increasingly bearish, particularly the outlook for 2023,” the agency said in an update.

It argued that high inflation, energy and labour shortages, and rising interest rates are key contributors to the gloomy global forecasts.

DBRS also noted that near-term inflation risks are tilted toward the upside, but central bank actions will begin to take greater effect over the next few quarters.

It projects that US economic growth rate will reach 0.9% in 2023, while the European outlook has also deteriorated sharply, faced with the prospects of energy shortages this winter, and the UK economy is expected to shrink by 0.1%.

“Risks of a recession are elevated, and asset prices may come under increasing pressure, but financial stability risks appear to be contained.”

DBRS Morning Star is scheduled to issue a rating action for the Cypriot economy on 7 October.