The Central Bank of Cyprus (CBC) on Monday made a slight downward revision to its growth forecasts for 2023 and 2024, according to its latest macroeconomic projections released in September.

The CBC now estimates that the growth rate of the Cypriot GDP will stand at 2.4 per cent for the current year and 2.7 per cent in 2024, down from its previous projections of 2.6 per cent and 2.8 per cent, respectively, made in June.

The CBC explained that the minor downward adjustment is, in part, due to the impacts of sanctions resulting from the ongoing war affecting the professional services sector, in conjunction with the adverse effects of the fragile external environment on non-tourism services.

However, the CBC has maintained its projection of 3.1 per cent growth for 2025, emphasising that the growth rate of the Cypriot economy on an annual basis, at 2.7 per cent of GDP, remains higher than the Eurozone’s first-half average of 0.9 per cent.

It should be noted that according to the CBC, the expected GDP projection for the period 2023-2025 relies primarily on domestic demand, with significant contributions expected from major private investments already underway.

Furthermore, projects to support digital and green development and other reform initiatives under the Recovery and Resilience Plan are expected to make a substantial contribution.

In addition, housing investments are also expected to contribute positively to Cypriot GDP due to the government’s interest rate subsidy scheme for new housing loans concluded by the end of 2021, with a disbursement period of three years.

What is more, while private consumption is projected to decelerate, it is expected to remain a significant driver of economic growth in the coming years.

The CBC explained that the slowdown is a result of the base effects from the reopening of the economy after lockdowns in 2021 and the expected gradual increase in the savings rate for debt repayment purposes.

Net exports for the years 2023-24 are expected to have a negative impact on the economic growth rate.

At the same time, the continued expansion, albeit at a slower pace, of foreign companies operating in the technology sector and the ongoing growth in tourism revenues are offset by the negative impact of sanctions due to the ongoing war on the professional services sector.

Regarding inflation, which relies on the Harmonised Consumer Price Index, the CBC has upwardly revised its forecasts by 0.6 and 0.4 percentage points for 2023 and 2024, respectively. The new estimates stand at 3.9 per cent and 2.7 per cent. The revision is attributed to the expectation of higher energy and food prices.

Structural inflation, excluding energy and food, is expected to decrease to 3.7 per cent in 2023, compared to 5 per cent in 2022. In 2024 and 2025. It is forecast to further decline to 2.5 per cent and 2.4 per cent, respectively, primarily due to the expected impact of the unified monetary policy in the euro area.

In terms of unemployment, the CBC has downwardly revised its projections for 2023 and 2024, with estimates now at 6.3 per cent and 5.9 per cent for those years, respectively.

These figures are 0.4 per cent and 0.2 per cent lower, respectively, than the central bank’s June projections.

The reduction in unemployment during the 2023-24 period, despite the downward revision in GDP, reflects a more significant than expected drop in the unemployment rate in the second quarter compared to the impact of sanctions on the professional services sector.

The CBC underscored the continued resilience in the labour market, even in the face of the ongoing conflict in Ukraine, with the unemployment rate dropping to 5.9 per cent in the second quarter, compared to 6.8 per cent in the first quarter of 2023.

“Years 2024-25 are expected to continue the downward trend, in line with the anticipated GDP growth, with unemployment projected to reach 5.9 per cent in 2024 and 5.6 per cent in 2025, nearing conditions of full employment,” the CBC stated.