The Economic Outlook says that in 2021, real GDP growth in Cyprus is projected at 3.3%. The growth forecast for 2021 has been revised downwards relative to the forecast in the February issue (3.7%), as a result of the smaller-than-projected contraction in GDP in 2020 and impediments to economic activity caused by the lockdown in January. In 2022,growth is projected to strengthen to 3.6%
The outlook says that the growth forecast for 2021 has been revised downwards relative to the forecast in the previous issue, reflecting the milder-than-expected contraction in 2020, but also the stricter pandemic containment measures implemented in January.
It notes that uncertainty about the outlook remains elevated because of pandemic-related factors, namely the fast rise in COVID-19 infections following the reopening of economic sectors in March, the presence of new virus variants, and the pace of vaccinations.
As regards downside risks, it says they stem from setbacks to the reopening of economic activities and renewed pandemic containment measures. It adds that downside risks are also associated with the path of external demand for tourist services that depends on the epidemiological conditions, including vaccinations, in Cyprus and abroad.
It also stresses that a slower vaccination pace in Cyprus and abroad, as well as new infection waves due to new variants may adversely affect domestic and external economic conditions.
Additional downside risks relate to pressures on public finances and a possible re-escalation in NPLs as the pandemic persists, it notes, adding that slow progress in implementing structural reforms and uncertainties around the foreclosure framework may undermine the country’s credibility, renew vulnerabilities and weigh on the growth prospects.
"On the upside,a faster-than-expected vaccination pace in Cyprus and the EU, leading to a steady improvement in the epidemiological conditions could boost confidence and demand. The positive effects of domestic and EU pandemic-related support programmes on activity may turn out stronger than those reflected in published data. In 2021 and 2022, CPI inflation is projected at 0.9% and 1.5%,respectively, as activity is expected to recover" it says.
In 2021, CPI inflation is projected at 0.9%; the forecast for inflation remained broadly unchanged compared to the February issue(0.8%).
In 2022, inflation is forecast to accelerate to 1.5% as growth strengthens. The growth forecast for 2021 presented in the bulletin is very close to the forecast published by the European Commission (3.2%) and slightly higher than the projection given by the IMF (3.0%).
Moreover, it says that for 2022, the growth forecast shown here is more optimistic than that by the European Commission (3.1%),but slightly lower than the projection by the IMF(3.9%)
Concluding, it says that the forecasts in this issue are accompanied by considerable uncertainty as economic outcomes hinge on the course of the pandemic and the pace of vaccinations, in Cyprus and abroad.