Cyprus growth is expected to remain robust in 2022 as real GDP is projected to expand by 4.1%, according to “Economic Outlook” for January issued by the Economic Research Centre (CypERC) of the University of Cyprus.
Real GDP in Cyprus is estimated to have increased by 5.6% in 2021. In 2022, CPI inflation is projected at 2.6%.
According to CypERC the drivers of the outlook include the robust recovery from the pandemic crisis, the strong economic sentiment, the supportive financing conditions and the accommodative fiscal policy.
The latest COVID-19 wave, it is noted, though more aggressive in terms of the surge in infections, has not led to significant restrictions in economic activity, possibly weakening the link between growth and epidemiological conditions. Nevertheless, new virus variants leading to new infection waves remain a key source of economic uncertainty and pose a major downside risk to the domestic and global outlook. It is added that new COVID-19 waves may intensify supply disruptions and amplify upward pressures on prices, especially international commodity prices, limiting growth prospects. Moreover, downside risks could emerge as a result of the high levels of public and private debt that may render the Cypriot economy vulnerable to tightening financial conditions and changes in investor sentiment. Finally, overdue structural reforms dent economic confidence and dampen investment prospects.
“As economic and social activities adapt further to the pandemic, upside risks to the outlook may stem from stronger-than-anticipated domestic demand and external demand, especially for tourist services”, CypERC points out.
It is added that rising vaccination coverage, and widespread and frequent COVID-19 testing allow further normalisation, benefitting economic activity. Also, investments and reforms, particularly through the Recovery and Resilience Plan for Cyprus are expected to positively affect output and employment.