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13 June, 2024
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Can Cyprus withstand yet another crisis?

Houthi attacks in the Red Sea add to challenges faced by the supply chain, creating economic consequences for end consumers



By Panayiotis Rougalas

The recent Houthi attacks on commercial vessels navigating the Red Sea have triggered another disturbance in the intricate web of the global supply chain. The resulting economic repercussions are poised to be shouldered by consumers in the end. This incident compounds the challenges faced by the supply chain, a trend that has been evident since 2020 with the onset of the COVID-19 pandemic, placing a direct burden on the end consumer. It further contributes to the mix of elevated prices, a concoction brewed by the pandemic and ongoing conflicts, inevitably exerting pressure on economies, pushing them to their limits once more.

Living decently with 1,000 euros is challenging, especially in Cyprus, but that is another chapter to address.

The Cypriot economy, at least in numerical terms, has proven resilient so far. The consequences of this new threat to the supply chain have not yet manifested, but by the end of January 2024, we should expect a first glimpse.

As documented by the Central Bank of Cyprus (CBC) in its macroeconomic projections, the GDP growth rate for 2023 is expected to reach 2.2%, compared to the 5.1% growth in 2022. For the years 2024-2026, a rise in GDP by 2.6%, 3.1%, and 3.2% is anticipated, respectively. The change in GDP during the period 2023-2026, compared to 2022, is a result of various factors.

At this stage, uncertainty prevails regarding the economic consequences of the conflict in the Middle East, as the final impact will depend on its duration and possible expansion. The CBC notes that, for the years 2023-2026, the expected GDP development is primarily based on the course of domestic demand. Significant contributions are expected mainly from large ongoing private investments, as well as projects supporting digital and green development and other reform projects within the framework of the Recovery and Resilience Plan.

The numbers tell the story. They are positive. However, if the blockade of the Red Sea and the Suez Canal continues, time will reveal the magnitude of the consequences. Nevertheless, Cypriots have been witnessing elevated prices on supermarket shelves for over a year. Clothing and footwear prices have also increased. Loan installments have risen due to the European Central Bank's interest rates, which have seen continuous hikes since the summer of 2022. The price of gasoline/diesel is high, so high that the government has taken measures – possibly forgotten – and reduced it by 8 cents per liter. Wage increases have only been seen by citizens receiving Guaranteed Minimum Income and those receiving the basic salary, now over 1,000 euros. Living decently with 1,000 euros is challenging, especially in Cyprus, but that is another chapter to address. Housing rentals in Cyprus are at unaffordable levels for the salaries the average citizen receives.

To all of the above, another facet of high prices from the crisis in the Red Sea is added. In the end, all crises ultimately impact the pockets of the citizens, and it seems that the domino effect of high prices/consequences from 2020 has not stopped, nor will it stop in 2024.

[This op-ed was translated from its Greek original and may have been edited for brevity]

Cyprus  |  inflation  |  crisis  |  economy

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