The Central Bank of Cyprus revised its projections for GDP growth, estimating it will be 2.4% this year and 2.7% in 2024, down from its June estimate of 2.6% and 2.8%.
In its September macroeconomic forecast, the CBC said the downward revisions are attributed “to the impact of Western sanctions against the Russian Federation due to the continued war in Ukraine, on the professional services sector combined with the negative impact of the fragile external environment on non-tourism services.”
Its 3.1% GDP projection for 2025 is unchanged, recalling that in the first half of this year, Cyprus’ annual growth rate of 2.7% GDP remained higher than the Euro area average of 0.9%.
In its new projections, the CBC said that economic growth is based mainly on local demand, while large investments underway and projects on digitalisation and green growth financed by the Recovery and Resilience Facility are also expected to contribute significantly.
“Private consumption, albeit at a slower pace, is expected to continue to be a main driver of economic growth in the coming years.”
Furthermore, the CBC revised upwards its projections for harmonised consumer prices, estimated to reach 3.9% and 2.7% in 2023 and 2024, respectively, up by 0.6% and 0.4% compared to June.
“This is due to projected higher prices in energy and food.”
Projections for core inflation, excluding energy and food, remained unchanged at 3.7% for this year, 2.5% (2024) and 2.4% (2025).
It projected the unemployment rate at 6.3% this year, falling to 5.9% in 2024, lowering its previous projections by 0.4% and 0.2%, respectively. For 2025, the projection remained unchanged at 5.6%.
“Improved projections for unemployment in 2023 and 2024, despite the lower GDP growth, reflect the greater than expected fall in the unemployment rate registered in the second quarter of this year, despite the effects of sanctions on the services sector.”
The CBC underlined the continued resilience shown by the Cyprus labour market, despite the war in Ukraine, as manifested by the fall of unemployment to 5.9% in Q2 from 6.8% in the first three months.