Real GDP growth is projected at 5.6% and 2.6% for 2022 and 2023, respectively, according to the Economics Research Centre of the University of Cyprus. In its report, the Research Centre notes that, compared to the forecast in the October issue, the growth forecasts for 2022 and 2023 have been revised up by 0.7% and 0.2%, respectively, as a result mainly of the higher-than-projected growth rate in the third quarter of 2022 and upward revisions in GDP growth data for recent quarters. In 2024, real GDP growth is forecast at 2.8%.
"Growth in 2022 is estimated to have remained strong, supported by the vigorous growth rates attained in the first three quarters of the year. In 2023, growth is forecast to decelerate. The upward pressures on energy prices and high inflation, as well as monetary policy tightening are expected to affect domestic activity both directly and indirectly through weaker global economic activity", the report notes.
The Economics Research Centre underlines that the growth outlook is accompanied by risks, predominantly on the downside. Downside risks to the outlook for Cyprus could arise if the slowdown in trading partner economies turns out to be more severe than expected. Strong upward pressures on international commodity prices (especially energy prices), as a result of geopolitical tensions, particularly Russia’s war in Ukraine, could sustain inflationary pressures and squeeze real incomes further, weighing on growth prospects.
Moreover, downside risks to the outlook could stem from faster and/or steeper than expected increases in the borrowing costs faced by the government and the private sector, as a result of monetary policy tightening in the euro area, particularly if high inflation persists, the report says. The rising borrowing and debt service costs could increase credit risk in conditions of a global slowdown, and may pose challenges to public finances and the domestic banking system, particularly as the complete implementation of the foreclosure framework has been undermined by delays, it notes.
Inflation (based on the Consumer Price Index) is forecast to decrease from 8.4% in 2022 to 3.2% in 2023. In 2024, inflation is projected to fall to 2%.