Cyprus GDP expected to grow, inflation to continue decreasing
The European Commission’s interim winter forecast indicates that Cyprus is expected to see its GDP grow by 2.8% in 2024 and by 3% in 2025. Inflation in Cyprus is forecasted to slow to 3.9% in 2023, down from 8.1% in 2022, and is expected to be further contained to 2.4% in 2024 and 2.1% in 2025. The main drivers of GDP growth in Cyprus are strong domestic demand, strategic investments, and lower energy prices. The Recovery and Resilience Mechanism is expected to support investments that will strengthen growth. Economy Commissioner Paolo Gentiloni presented the winter forecast, noting that the European economy is entering 2024 on a weaker footing than previously predicted. The EU and eurozone growth forecasts for 2023 have been revised to 0.5%, and for 2024, they have been adjusted to 0.9% in the EU and 0.8% in the eurozone. The commission predicts an increase in economic activity in 2025, with growth of 1.7% in the EU and 1.5% in the eurozone. Inflation in the EU is expected to decrease from 6.3% in 2023 to 3.0% in 2024 and further to 2.5% in 2025. In the Eurozone, inflation is projected to slow from 5.4% in 2023 to 2.7% in 2024 and to 2.2% in 2025. The contribution of net exports to Cyprus’ economy is expected to remain weak due to economic uncertainty in trading partners and strong demand for imports. Real GDP growth in Cyprus slowed to 2.5% year-on-year in the first three quarters of 2023, but tourism services demand continued to recover. Economic activity in the EU is expected to pick up in 2024 after a weak start to the year. Lower energy prices have led to a faster-than-expected decline in headline inflation in 2023. The forecasts are subject to uncertainty due to geopolitical tensions and the risk of conflict expansion in the Middle East. Rising shipping costs due to trade disruptions in the Red Sea are expected to exert only a slight influence on inflation. Risks to core growth and inflation forecasts include consumption, wage growth, profit margins, interest rates, and the impact of extreme weather events due to climate change.
