DBRS slashes Cyprus’ growth rate amid deteriorating outlook due to war in Ukraine

Rating Agency DBRS Morningstar on Wednesday slashed Cyprus’ baseline growth rate by 0.7 per cent for 2022, citing a deteriorating outlook following Russia’s invasion of Ukraine.

In its updated sovereign baseline scenarios, the Canadian rating agency said Cyprus’ growth rate will reach 3.4 per cent compared to 4.1 per cent in its March 2022 projection and 3.5 per cent in 2023 compared with the previous projection of 3.3 per cent.

DBRS maintained its projection for unemployment unchanged at 6.9 per cent for 2022 with the unemployment rate raised to 6.8 per cent in 2023 up from the previous projection of 6.4 per cent.

“Since our March update, near-term growth outlooks have deteriorated across the majority of our rated sovereigns,” DBRS said, noting that “European growth projections for 2022, in particular, have been cut due to the impact of the Russian invasion of Ukraine, the resulting higher pressures on inflation and the additional disruptions in supply chains.”

The agency also pointed out that “with a few major advanced countries already close to neutral policy rates, we expect the tightening cycle will have an impact on demand growth in the next 6-12 months.”

“This is likely to ease inflationary pressures, but also increase the risk of a technical recession as borrowing costs increase and as some companies shed labour in response,” it added.

The agency also warned that high commodity prices appear likely to persist as the conflict in Ukraine continues, and could further dampen growth prospects heading into 2023.