Central Bank predicts 2.2% GDP growth in 2023

The Central Bank of Cyprus (CBC) expects GDP growth of 2.2% in 2023, compared to significant growth of 5.1% in 2022, while for the years 2024-26 it expects GDP growth of 2.6%, 3.1% and 3.2%, respectively.

At the same time, CBC Governor Constantinos Herodotou stresses that "the implementation of reforms and the emphasis on sustainable growth are key factors for further prosperity and progress in the country", while for the banking system he says that "it continued to maintain its robustness and resilience in 2023."

According to the macroeconomic projections presented in the CBC's December 2023 Economic Bulletin, GDP growth in the years 2024-2026 is based "mainly on the recovery of domestic demand and, to a lesser extent, on net exports in the years 2025-26, in the context of the expansion of the turnover of foreign companies in the technology sector that have already established themselves in Cyprus, especially in the previous years."

"It is also based on the expected correction in tourism revenues after the negative impact expected in 2024 due to hostilities in the Middle East," it notes.

In addition, the CBC says that the geopolitical tensions are expected to have little impact on the labour market, with unemployment continuing to gradually decline to 5.3% in 2026.

Moreover, in 2023 the domestic HICP is projected to fall significantly to 4% from 8.1% in 2022, while a further decline in inflation is expected in 2024, 2025 and 2026 to 2.4%, 2% and 1.9%, respectively.

According to the CBC, productivity, after rising 2% in 2022, is projected to slow down in 2023 to 0.6% due to job-rich economic growth. In 2024-26, it is expected to continue to recover by 1.6%, 1.9% and 2%, respectively.

Unit labour costs are expected to rise further in 2023-26 by around 8.5% cumulatively, mainly due to expected increases in nominal expenditure per employee.