IMF lowers economic growth forecast for Cyprus

The International Monetary Fund (IMF) has cut its growth forecast for the Cypriot economy, projecting a growth of 3.5% in 2019, down 0.7 percentage points from its earlier forecast in October, according to the fund`s latest World Economic Outlook (WEO) report released on Tuesday.

The IMF projected an even lower growth rate for Cyprus of 3.3% in 2020.
 
It said that inflation would decline to 0.5%, from 1.8% it projected last October and 0.8% in 2018, while in 2020 inflation is expected to increase to 1.6%.
 
In addition, the Fund`s report projects a gradual reduction of unemployment to 7% this year and 6% in 2020, from 8.4% in 2018.

“Reflecting the slowdown in activity in the second half of 2018 and the first half of 2019, global growth is set to moderate from 3.6% in 2018 to 3.3% in 2019 and then return to 3.6% in 2020”, according to the report. The forecast for 2019 is 0.4 percentage point lower than in October 2018 WEO, while the forecast for 2020 is 0.1 percentage point lower.
 
Growth in the euro area is set to moderate from 1.8% in 2018 to 1.3% in 2019 (0.6 percentage point lower than projected in October) and 1.5% in 2020. “Although growth is expected to recover in the first half of 2019 as some of the temporary factors that held activity back dissipate, carry-over from the weakness in the second half of 2018 is expected to hold the 2019 growth rate down” said the IMF.

According to the report, growth rates have been marked down for many economies, notably Germany (due to soft private consumption, weak industrial production following the introduction of revised auto emission standards, and subdued foreign demand); Italy (due to weak domestic demand, as sovereign yields remain elevated); and France (due to the negative impact of street protests).
 
The IMF said that the baseline projection of about 1.2% and 1.4% growth in the United Kingdom in 2019–20 “is surrounded by uncertainty”.

It noted that “the downward revisions relative to the October 2018 WEO reflect the negative effect of prolonged uncertainty about the Brexit outcome, only partially offset by the positive impact from fiscal stimulus announced in the 2019 budget. This baseline projection assumes that a Brexit deal is reached in 2019 and that the United Kingdom transitions gradually to the new regime”.