The EU’s Spring Forecasts for 2022 and 2023 are in line with the latest projections of the finance ministry and once again demonstrate the resilience of the Cyprus economy in times of crisis, Finance Minister Constantinos Petrides said on Tuesday.
His written statement followed publication on Monday of the European Commission’s Spring Forecasts which said that following a strong rebound of 5.5 per cent in 2021, economic activity in Cyprus is expected to slow down to 2.3 per cent in 2022 due to the negative impact of Russia’s invasion of Ukraine and soaring inflation.
The report noted that the 5.5 per cent GDP growth of 2021 surpassed the 2019 pre-pandemic level, with both domestic and foreign demand contributing to this growth. Domestic demand was supported by an expansionist fiscal policy and the successful vaccination campaign which allowed the gradual lifting of Covid-19 restrictions.
Petrides noted that it was worth pointing out that the EU Commission had made special reference to the strong increase in export services not linked with tourism, such as high tech and professional services which show the constant differentiation of Cyprus’ development model and the success of polices to attract high tech.
As regards 2022, the EU said the Cypriot economy had started the year on a strong footing, but Russia’s invasion of Ukraine and the related sanctions are expected to impact economic activity, especially tourism and services exports, as Russia is an important market for both. High fuel prices and rising inflation present an additional challenge for the tourist sector, it added. Overall, real GDP is forecast to grow by 2.3 per cent in 2022, marginally below the Eurozone average.
Inflation in 2022 is expected to reach 5.2 per cent, mainly due to higher energy prices, but will be significantly lower than the EU and Eurozone average of 6.8 per cent and 6.1 per cent respectively. Cyprus is expected to have the sixth lowest inflation rate in the EU. Per capita increase in revenue for employees is expected to rise by 4.1 per cent – higher than the 3.4 per cent average of the Eurozone, but below the inflation rate.
Inflation is projected drop to 2.7 per cent per cent in 2023 while employees’ renumeration per capital will rise by 4.5 per cent, significantly above inflation.
The outlook is more positive for 2023 when GDP is projected to grow by 3.5 per cent, higher than the EU and Eurozone average of 2.3 per cent, thanks to a recovery in the tourism sector and the delayed partial indexation of wages that is implemented here in contrast to most EU countries which will support purchasing power. Implementation of Cyprus’ Recovery and Resilience programme will further support investments.
In the labour market, unemployment is expected to temporarily rise to 7.8 per cent because of reduced economic activity before resuming its decreasing trend in 2023 to 7.3 per cent.
“The projections of the European Commission on GDP for 2022 and 2023, during a period of great uncertainty and challenges, are generally in line with the latest projections of the finance ministry which forecast growth of 2.7 per cent and 3.8 per cent and once more demonstrate the resilience of the Cyprus economy in times of crisis,” the minister concluded.