Cyprus central back cuts growth forecast
The Central Bank of Cyprus (CBC) downgraded by 0.9 percentage points its forecasts for gross domestic product growth in 2022, due to the negative effects of the war in Ukraine and the sanctions against Russia.
In a report released on Friday, it noted that the growth prospects of the Cypriot economy have been negatively affected by the war in Ukraine, at least in the short term. The resulting sanctions imposed against Russia mainly affect the tourism and the professional services sectors of Cyprus, and are expected to have a negative impact on wider economic activity.
“Based on these developments, the growth rate for 2022, as estimated today, is expected to be around 2.7% compared to 3.6% as the CBC December 2021 forecasts, before the start of the war,” said the bank’s governor, Constantinos Herodotou, said in his foreword to the report.
He noted that provisional data by the Statistical Service (CyStat) for the first quarter of 2022 showed growth of 5.8%. “However, given the timing of the outbreak of the war, it is expected that its economic impact will be more strongly reflected in the figures for the next quarters of 2022,” he said.
On the other hand, the Cypriot economy might show even greater resilience to the effects of the war compared to the current forecasts in case of continuation of positive developments in consumer confidence and tourism, as seen in recent indicators. In any case, the degree of uncertainty is still high and any forecast today may vary, the CBC governor pointed out.
He went on to highlight “the large increase observed in domestic inflation initially as a consequence of the effects of the pandemic mainly on the global production and supply chains in combination with the increase in demand that followed the restart of the economies. Subsequently, the war in Ukraine created new additional disruptions in world trade, while at the same time leading to a large increase in the prices of oil and other basic products.”
On the basis of these developments, “inflation is expected to accelerate and rise overall to around 7% in 2022 compared to 2.5% per CBC’s forecast in December 2021,” Herodotou estimated.
The unemployment rate in 2022 is expected to rise slightly to around 6.9% from a December forecast for a 6.8% rate, but still lower than the 7.5% rate in 2021.
