The Economics Research Centre (CypERC) of the University of Cyprus has updated its economic forecasts, indicating stronger growth and lower inflation expectations for the upcoming years.

The report details several factors contributing to the robust economic outlook, despite external challenges.

In April, CypERC stated that “economic activity in Cyprus is estimated to continue to grow in the period 2024-2025, maintaining its resilience.”

Specifically, the Gross Domestic Product (GDP) growth rate is projected to reach 2.6 per cent in 2024 and strengthen to 3.3 per cent in 2025.

Relative to the January issue, the estimates have been revised upward by 0.2 percentage points for 2024 and 0.1 percentage points for 2025.

This revision is attributed to the resilience of domestic activity and the labour market. Concurrently, it has downgraded its forecast for inflation this year to 2.0 per cent, a slight decrease from the 2.1 per cent estimated in January.

Moreover, CypERC stated that “despite relatively high interest rates and a significant slowdown in the economies of Cyprus’ trading partners, domestic activity and the labour market have remained resilient, fuelling growth in the coming quarters.”

It also noted that domestic activity in the last two quarters has benefited from lower inflation, tight labour market conditions, rising wages, and the country’s strong fiscal position.

Regarding inflation, based on the Consumer Price Index, CypERC projects it to remain on a downward trend in 2024 and 2025. Inflation is projected at 2.0 per cent in 2024 and 1.9 per cent in 2025.

When compared with the January issue, the inflation forecast has been revised down by 0.1 percentage points for each year, primarily due to a further slowdown in domestic inflation in the first quarter of this year.

The CypERC cautions that possible deviations of GDP growth and inflation from the above projections may arise primarily due to increased geopolitical tensions, particularly from any escalation of the conflict in the Middle East, the economic performance of Cyprus’ trading partners, and the future path of interest rates.