IMF projects steady GDP growth for Cyprus in 2023

The International Monetary Fund (IMF) maintained its projection for Cyprus’ economic growth in 2023 at 2.5% of GDP, while real GDP growth is expected to pick up pace in the next year.

In its April 2023 World Economic Outlook (WEO), the IMF said that Cyprus' real GDP will expand by 2.5% (as was the projected growth in the October 2022 WEO) with the economy gathering more pace in the following year reaching a growth of 2.8%. The Cypriot economy last year grew at a rate of 5.6%.

Inflation is expected to decelerate significantly this year dropping to 3.9% from 8.1% the previous year. In 2024 inflation will decelerate further to 2.5%, the IMF said.

The IMF also maintained its projection for Cyprus' unemployment rate at 6.5% this year from 6.7% in 2022, while in 2023 unemployment is projected to decline to 6.2%.

Cyprus’ current account deficit is projected at 7.8% of GDP this year and will ease to 7.2% in 2024. Last year Cyprus' current account deficit amounted to 8.8%.

Feeble and uneven growth

According to the IMF, the baseline forecast is for global output growth, estimated at 3.4 percent in 2022, to fall to 2.8 percent in 2023, 0.1 percentage point lower than predicted in the January 2023 WEO Update, before rising to 3.0 percent in 2024.

“A return of the world economy to the pace of economic growth that prevailed before the bevy of shocks in 2022 and the recent financial sector turmoil is increasingly elusive,” IMF said.

Real GDP growth in Europe and the Euro area is estimated at 0.8% in 2023 while growth will accelerate to 1.7% and 1.4% respectively in 2024. The economy of the UK, a significant partner of Cyprus especially in the tourism sector, is estimated to shrink by 0.3% this year and to recover by 1% in 2024. Output in Greece is projected to reach 2.6% this year and to decelerate to 1.5% in 2024, while real GDP in the US is estimated at 1.6% and 1.1% in 2023 and 2024 respectively.

The IMF notes that more than a year after Russia’s invasion of Ukraine and the outbreak of more contagious COVID-19 variants, many economies are still absorbing the shocks, adding “the recent tightening in global financial conditions is also hampering the recovery.”

“As a result, many economies are likely to experience slower growth in incomes in 2023, amid rising joblessness. Moreover, even with central banks have driven up interest rates to reduce inflation, the road back to price stability could be long,” the IMF said, pointing out that “over the medium term, the prospects for growth now seem dimmer than in decades.”