The Central Bank of Cyprus believes the Cypriot economy will expand by 2.6% GDP in 2023, with positive developments observed in private consumption offset by any impact of sanctions on Russia for invading Ukraine.
In its June macroeconomic projections, the CBC has marginally revised down its estimate for 2024 by 0.2% to 2.8% due to the expected impact of the sanctions against Russia on the services sector, maintaining its projection for 2025 unchanged at 3.1% GDP.
“Private consumption, albeit estimated to decelerate, is expected to remain a significant driver to economic growth in the next years and to a lesser extend to exports,” the CBC said.
Consumption, the CBC, will be “boosted by the inflow of foreign companies established in Cyprus in technology and the continued increase in revenue from tourism, which recovered to the pre-pandemic levels in the first three months of the year”.
Large private investments, digital and green transition projects, and reforms in the Recovery and Resilience Plan context will also contribute to economic growth.
CBC projections on inflation were broadly unchanged at 3.3% for 2023 from a record 8.1% last year, whereas the HCIP will further decline to 2.3% and 2.0% in 2024 and 2025, respectively.
It is driven by the correction in energy prices and the eradication of disruption in supply chains, and the expected impact of rising interest rates.
According to the CBC, unemployment will decline marginally to 6.7% of the labour force this year from 6.8% in 2022 due to the “continued tightness” in the market despite the continuing war in Ukraine.
In 2024 and 2025, unemployment is projected to drop to 6.1% and 5.6%, respectively.
The projections are marginally revised upwards by 0.1% and 0.2% in 2024 and 2025, reflecting the somewhat more contained growth rates due to the impact of sanctions on the services sector.
CBC said risks to the outlook are “tilted to the downside and are mainly associated with possible more negative prospects in the external environment than expected and lower than expected performance in exports and tourism”.
Upside risks are associated with possible higher-than-expected implementation of investments in the private sector and better performance in tourism.
