You are here

UCY Economic Research Centre upgrades GDP growth projection

01/11/2021 09:58

The University of Cyprus’ Economic Research Centre (ERC) has significantly upgraded its projection for Cyprus' real GDP growth, citing the acceleration of the economic recovery and the improvement in the labour market.

In its economic outlook bulleting for October 2021, the ERC said real GDP growth in 2021 will reach 5.4% and 4.1% the following year, compared with its July projections over a real GDP growth of 3.7% and 3.8%.

The ERC also revised its projection for inflation which is estimated to reach 2.3% in 2021 and 1.8% in 2022 compared with 1.6% and 1.8% in 2021 and 2022 respectively.

“The upward revisions were mainly driven by the strengthening recovery during the second quarter of 2021, further improvements in leading indicators in the third quarter, as well as by upward revisions in National Accounts data,” the ERC said.

The Centre however warned over downside risks to outlook, which could stem from new waves of COVID-19 infections because of new virus variants and relatively lower vaccination coverage among younger age groups.

“Pandemic-induced supply disruptions and sustained upward pressures in international commodity prices may dampen growth prospects, as Cyprus’s import dependency, especially on oil, is very high. Moreover, downside risks could emerge as a result of the high levels of public and private debt that may render the Cypriot economy vulnerable to tightening financial conditions and changes in  investor  sentiment,” the ERC added.

It also highlighted the relatively high level of NPLS which cloud the outlook, noting that “fiscal pressures may arise, for example, because of the persistence of the pandemic, increased financing needs relating to the General Healthcare System and the State Health Services Organisation, as well as inflationary pressures.”
On the upside, the ERC said investments and reforms, particularly through the Recovery and Resilience Plan for Cyprus are expected to positively affect output and employment.

Improvements may arise from a stabilisation of COVID-19 infections and further progress in vaccination coverage  globally, the ERC said noting that “in Cyprus, a higher vaccination coverage among younger age groups  and a better-than-anticipated tourist season could result in a stronger-than-projected outcome.”