The Central Bank of Cyprus (CBC) has marginally upgraded its projections for GDP growth this year citing the slightly improved prospects in the external economic environment and the anticipated lower energy prices, amid the continued war in Ukraine.
In its medium-term macroeconomic projections for March 2023, the CBC said that the Cypriot output this year will expand by 2.6% (0.1% higher compared with the December 2022 projections) while in 2024 and 2025 growth will accelerate to 3% and 3.1% (-0.1% and with no change respectively).
“The slight upward revision for 2023 is due, in part, to more positive prospects in the external environment and the anticipated lower energy prices,” the CBC said.
But the CBC added that growth for 2024 was slightly revised downwards due to the restrictive effect on domestic consumption and investments by rising interest rates.
The CBC pointed out that growth rates in the external environment remain below the long-term averages.
According to the CBC, unemployment is estimated to decline to 6.6% this year and will decline further to 5.9% and 5.5% in 2024 and 2025 respectively edging close to full employment.
Inflation based on the harmonized index of consumer prices (HICP) is estimated to drop to 3.3% this year from 8.1% in 2022 and will decline further to 2.3% and 1.9% in 2024 and 2025.
The drop in inflation in 2024 and 2025 is mainly attributed to the normalization in energy and food prices, the correction of the disruption in supply chains and the expected impact of rising interest rates in domestic demand, the CBC added.