The Cypriot economy will recover in 2021 albeit with a more moderate pace compared with the previous projections affected by the lockdown measures in January and April this year which had a less severe toll on the economy, the Central Bank of Cyprus (CBC) has said, noting the projections include upside deviations due to higher absorption of EU funds due to the Recovery and Resilience Facility and a possible faster recovery of the tourism industry following the Covid pandemic disruption.
In its June 2021 macroeconomic forecasts for the Cypriot economy, the CBC said following a downturn of 5.1% in 2020, the Cypriot GDP is forecasted to grow by 3.8% compared with its previous projection of 4.1%.
In 2022 and 2023 the Cypriot output will amount to 3.1% and 2.3% respectively, the CBC said. In its December 2000 projections, the CBC forecasted a downturn of 6.2% in 2020 followed by growth of 4.1%, 3.4% and 2.7% in 2021, 2022 and 2023 respectively.
“A slightly more moderate recovery is expected for 2021 compared with the December 2020 projections as result of the two strict lockdown measures in January and April of this year,” the CBC said, noting however that the impact of the two lockdowns was particularly smaller than the lockdown of 2020 due to the adaptation effects for consumers, employees and business alike.
The CBC also noted that due to the less severe impact, the Cypriot economy in the first quarter of 2021 recorded a smaller recession than previously expected, stressing however that projections are marked by significant uncertainty albeit more limited, associated with possible Covid mutations and the scope of possible permanent losses on GDP.
Moreover, the CBC said the baseline projections are accompanied by upside deviations due to the possibility of increased absorption of EU funds associated the EU Recovery and Resilience Fund, higher than anticipated utilisation of cash reserves that emerged due to the pandemic as well as a possible faster recovery of the tourism industry.
According to the CBC inflation is expected to return to positive territory in 2021 reaching 1.1% from -1.1% the previous year pushed upwards by price increases in oil prices and services. In 2022 inflation will decelerate to 0.7% and will reach 1% in 2023.
Furthermore, the CBC said structural inflation (excluding energy and food prices) is expected to reach 0.5% in 2020 compared with -0.8% in 2020 and will amount to 0.7% and 1.3% in 2022 and 2023 respectively.