Real GDP growth is forecast at 3.6% in 2021, 3.8% in 2022, 3.2% in 2023 and 2.8% in 2024, according to the baseline scenario projected in the Stability Programme 2021-2024, presented by the Ministry of Finance.
The forecast is that the budget balance of the General Government will remain in deficit during 2021 of about 4.7% of GDP and will improve from 2022 onwards reaching a surplus of about 1.6% of GDP by the end of the programming period, allowing debt-to-GDP ratio to continue its downward path over 2022-24 at a satisfactory pace.
The general government debt is projected at €24.6 bn or as a percentage of GDP at 111.9% at the end of 2021.
Growth in 2021 is still supported by government spending and will be reinforced by a normalization in private spending and investments, driven by the implementation of a significant number of projects in the areas of tourism, energy, transport and education and include, inter alia, the construction of marinas, a casino resort and an infrastructure development of the University of Cyprus.
The growth forecast for 2021 has been revised downwards since the autumn forecasting round due to a slower than expected recovery in the tourism sector. Indeed, tourist arrivals in numbers for 2021 are anticipated to double compared to the 2020 levels but remain significantly lower than the record performance of 2019, fueled particularly by the UK, Russia, Germany and other European markets.Tourist arrivals are projected to increase gradually over the forecasting horizon, reaching 2019 levels by 2024.
In the medium-term period 2022-2024, the outlook of the economy is forecast to be robust with increased growth prospects.The macroeconomic environment is expected continue improving and maintain the Cyprus economy sound with investment and domestic demand to be the main drivers to growth.
Real GDP growth is forecast to accelerate to about 3.8% in 2022 due to improved tourism performance, higher private consumption due to a continued improvement in labour market performance and improved investment expenditure due, inter alia, to the implementation of RRF projects. Afterwards, growth will decelerate to 3.2% in 2023 and 2.8% in 2024, where the tourism sector is envisaged to return to its 2019 levels.
The declining path of unemployment is projected to maintain pace during 2021-2024, falling to 7.2% in 2021, to 6.7% in 2022, 6.0% in 2023 and to 5.5% in 2024. The reduction of the unemployment rate is triggered by improved economic activity, significant capital investment, resilient private consumption and the gradual return of tourism back to the 2019 levels in 2024, all leading to a sustained job creation.
The most significant risk is the uncertainty surrounding the duration of the crisis, making it difficult to predict its potential scarring effects on the productive factors of the economy in the period of the next two years that will largely shape the kind of rebound that we will witness. It is noted that as this Stability Programme is being drafted, daily infection rates are still relatively high and hospital capacities are constantly challenged.