Herodotou optimistic about Cypriot economy

The governor of the Central Bank of Cyprus, Constantinos Herodotou, expressed optimism that with appropriate actions, prudence, and rationality, the country’s economy and banking system can successfully manage the challenges they face.

Herodotou’s comments, made at a business event held by the Employers and Industrialists Federation (Oev) in Ayia Napa, were followed by statements by Deputy Minister of Tourism Costas Koumis.

Koumis said that tourist arrivals for the entirety of 2023 are expected to increase by between 5 and 10 per cent.

During his speech, Herodotou highlighted the significant resilience demonstrated by the Cypriot economy and banking sector in the face of recent external shocks, such as the pandemic, the 2022 energy crisis, and the ongoing war in Ukraine.

Herodotou explained that this resilience has been acknowledged by international rating agencies, as evidenced by recent upgrades to Cyprus’ credit rating.

He added that “according to the latest macroeconomic forecasts of the Central Bank of Cyprus, updated for March 2023, the economic growth rate is expected to slow down to 2.6 per cent in 2023”.

“This growth rate compares favourably with the average in the euro area, which is predicted to reach 1 per cent,” he added.

In addition, he noted that “investments for development and reform projects in the context of the implementation of the Recovery and Resiliency Plan are estimated to amount to approximately €700 million over the next three years”.

Regarding the 2024-2025 period, Herodotou said that “economic growth of approximately 3.1 per cent per year is expected”.

What is more, the CBC governor pointed out that there was a significant decrease in inflation during the first months of 2023, primarily due to reductions in energy prices.

Specifically, according to the latest data from the European Statistical Service (Eurostat), inflation in Cyprus fell to 3.8 per cent in April 2023, from its peak of 10.6 per cent last July.

As for inflation forecasts, Herodotou said it “is expected to decline significantly to 3.3 per cent in 2023, while further easing of inflationary pressures is expected in 2024 and 2025, to 2.3 per cent and 1.9 per cent, respectively.”

Moreover, he noted that while Cypriot banks have made significant progress in managing non-performing loans (NPLs), the problem has not yet been fully resolved, with small and medium-sized banks lagging behind.

The CBC governor stated that the banking sector as a whole has shown a significant reduction in NPLs, which fell from 44 per cent in 2017 to 9.5 per cent at the end of 2022, something which has helped Cyprus in the credit ratings mentioned above.

However, Herodotou also cautioned that high inflation combined with rising interest rates may reduce the net income of households and limit borrowers’ ability to repay.

In this regard, he emphasised the need for prudence and careful risk management in the banking sector.