The European Commission forecasts for Cypriot GDP for 2022 and 2023, at 2.3% and 3.5% respectively, are in line with the latest forecasts of Cyprus Ministry of Finance, which forecast growth of 2.7% and 3.8%, showing the resilience of the Cypriot economy in times of crisis, the Ministry of Finance said in a press release on Tuesday.
The European Commission's spring forecast, released on Monday, says that after a strong 5.5% recovery in 2021, economic activity is expected to slow down to 2.3% in 2022, due to the negative effects of the Russian invasion in Ukraine and the substantial rise in inflation.
According to the Ministry, the EU forecast states that real GDP grew by 5.5% in 2021, exceeding the pre-pandemic levels of 2019, with both domestic and foreign demand
"Domestic demand has been supported by the expansionary fiscal policy but also by the successful vaccination campaign, that has allowed the restrictions to be gradually lifted," the Ministry said, noting that the European Commission emphasises the increase of services exports, not related to tourism, such as High Technology and professional services, "which demonstrates the continued diversification of our development model and the success of policies to attract High Technology companies," the Ministry adds.
For 2022, the Spring Forecasts indicate that the Cypriot economy started from a strong base, but the invasion of Ukraine and the relevant sanctions imposed are expected to have an impact, especially on tourism and exports of services, since Russia is an important market in these two areas.
Also, high fuel prices and rising inflation are an additional challenge for the tourism sector, the Ministry notes, adding that overall, real GDP is projected to grow by 2.3% in 2022, marginally lower than the average growth of the Eurozone.
Additionally, inflation for 2022 is expected at 5.2%, due to the increase in energy prices but significantly lower than the average inflation in the EU and the Eurozone which is estimated at 6.8% and 6.1% respectively. Specifically for this year, Cyprus is estimated to have the 6th lowest inflation in the EU, according to the Ministry.
The increase in per capita earnings for employees for this year is estimated to reach 4.1%, which is higher than the average in the Eurozone (3.4%), but lower than inflation. For 2023, inflation is expected to drop further to 2.7%, while the increase in per capita earnings of employees is expected to reach 4.5%, significantly higher than inflation, the Ministry says.
Stronger growth potential is projected for 2023, with a GDP growth of 3.5%, significantly higher than the EU and eurozone average estimated at 2.3%, due to the recovery of the tourism sector, and the support of salaries by COLA applied in Cyprus, which will support the purchasing power, according to the Ministry. In addition, the implementation of the Cyprus Recovery and Sustainability Plan is expected to further support investment.
Referring to the labour market, the Ministry notes that a temporary increase in unemployment is expected to reach 7.8% this year due to reduced economic activity, while in 2023 it will continue its downward trend to 7.3%.