Cyprus GDP forecast revised down by economics research centre

The University of Cyprus’s Economics Research Centre (CypERC) this week revised its projections for the country’s real GDP growth downward for 2023, citing various challenges and uncertainties.

The centre’s latest report, which covers the period up to the end of October, indicates that Cyprus’s economy is expected to grow at a rate of 2.4 per cent, down from the 5.1 per cent recorded in 2022.

In addition, the growth forecast for 2024 has been revised downward by 0.1 percentage point to 2.8 per cent.

At the same time, CypERC has increased its inflation expectations. In the updated report, they expect an inflation rate of 3.9 per cent for 2023 and 2.6 per cent for 2024, reflecting higher inflation levels compared to their previous estimates.

The report highlights the presence of risks associated with the economic growth and inflation outlook.

CypERC underlined that “economic prospects are accompanied by risks,” and mentioned that “geopolitical uncertainty has significantly increased compared to the July issue, with potential consequences for economic activity and prices in Cyprus over the next few quarters”.

What is more, the centre noted that “during the second quarter of 2023, the GDP growth rate in Cyprus further decelerated, resulting in a lower rate than expected”.

As a result, the projections for 2023 and 2024 have been adjusted downward by 0.6 and 0.1 percentage points, respectively, compared to the July report.

According to the report, factors influencing these adjustments include “stricter credit conditions, rising prices, and slowing economies in Cyprus’ trading partners, especially in the eurozone, which significantly burden domestic growth prospects”.

However, the centre also highlighted some factors supporting the outlook, including “favourable labour market conditions, resilient business confidence in Cyprus, an increase in new business loans, further improvements in financial market indicators, and strong fiscal performance”.

Discussing the Consumer Price Index (CPI), the report indicated that inflation is expected to decrease from 8.4 per cent in 2022 to 3.9 per cent in 2023 and further to 2.6 per cent in 2024.

The reasons cited include stricter credit conditions and the impact of previous decreases in international commodity prices, especially for petroleum and domestic inflation.

Moreover, the report acknowledged that “the reduction in inflation in Cyprus between the second and third quarters was marginal, and recent price trends have shown upward tendencies, especially in September”.

Therefore, CypERC emphasised that “inflation projections for 2023 and 2024 have been revised upward by 0.9 and 0.6 percentage points, respectively, compared to those in the July issue”.