The Cypriot economy is expected to grow by 2.5% GDP in 2023, well above the euro area average of 0.5%, said Central Bank governor Constantinos Herodotou.
Herodotou said the economy showed notable resilience in 2022, recording significant GDP growth of 5.6%, despite the negative international environment, partly due to the higher-than-expected activity in the tourism industry and the non-dependence of the Cypriot economy on Russian gas.
And the Cypriot banking sector has very limited exposure to the Russian economy and therefore has not been affected by the sanctions on Russia.
He added that according to the latest Central Bank of Cyprus forecast, the Cypriot economy is expected to be 2.5% this year, which compares well to the euro area average of 0.5%, and inflation is expected to decelerate, levelling at 3.3%, from 8.1% in 2022.
Economic growth was supported by new lending by the banking sector and foreign direct investment, including facilitating a fast-track process for foreign hi-tech firms.
Cyprus’ importance as a foreign investment hub is also reflected in the Greenfield FDI Performance Index, created by FDI Intelligence.
In 2021, Cyprus was ranked 18 out of 84 countries included in this index (climbing by 50 places compared to 2020).
The shipping sector is another important pillar of Cyprus’ economic success, noted Herodotou, with Limassol its maritime capital.
Cyprus is the largest third-party ship management centre in the European Union, one of the largest in the world.
It ranks third for its contribution to the value of export of services at 19%, after the financial services and ICT sectors, with contributions of 32% and 23%, respectively.
“Challenges for policymakers include the global inflation dynamics currently being addressed by central banks, with monetary policy utilised at a different pace in different regions, due to the differences in economic fundamentals,” Herodotou noted.
He said the shipping sector would remain the backbone of the global economy, adding that Cyprus continues to strengthen its role as a hub for ship management, ship owning and vessel chartering services.
Herodotou pointed out that despite the US and EU economies being hit by rising inflation, there were distinct factors behind it.
“In the United States, demand factors have been the main determinants of the upward inflation trend.
“In the euro area, price increases were initially mostly driven by the supply shock caused by the energy crisis.
“The second main difference relates to the labour market dynamics, with the US labour market exhibiting a greater degree of tightness, evidenced by stronger wage growth than in the euro area. In the euro area, the pick-up in wage growth is a more recent phenomenon.”
