Cyprus growth forecast revised upward
The Central Bank of Cyprus has revised its 2024 forecast for gross domestic product growth to 3%, from 2.8% that was expected last March, mainly due to the upward revision of domestic demand, while it maintained its forecast for growth in the years 2025 and 2026, at 3.1% and 3.2%, respectively.
According to the CBC’s macroeconomic forecasts (June 2024), for the Cypriot economy for the years 2024-2026, the GDP revision for 2024 is conservative, taking into account the strong economic results of the first quarter of this year, adding that at the same time, it reflects the economic uncertainty due to the fragile external environment.
In relation to the March 2024 forecasts, the CBC revised slightly downward the unemployment rate in 2024 by 0.1 percentage points to 5.7%, maintaining its forecasts for the years 2025 and 2026, while upgrading its forecasts for harmonized inflation in 2024, by 0.1 percentage points to 2.1%, and lowering them by 0.1 percentage points in 2025 and 2026.
Noting that the labor market continues to support the Cypriot economy and unemployment is expected to fall to 5.7% of the workforce in 2024 compared to 6.1% in 2023, it says that, in line with expected GDP growth, unemployment is expected to further decrease to 5.6% in 2025 and 5.3% in 2026, approaching full employment conditions.
According to the CBC, inflation (Harmonized Index of Consumer Prices, HICP) is forecast to decline to 2.1% in 2024 compared to 3.9% in 2023. For the years 2025 and 2026, the HICP is expected to slow further to 1.9% and 1.8%, respectively.
“The risks for deviation from the basic forecast scenario are assessed overall as balanced for 2024 and slightly upward for the years 2025 and 2026,” it notes.
The CBC says that “upside risks come mainly from possible higher-than-expected energy prices as well as impacts related to climate change, implementation of relevant tax policies, and extreme weather events.”
According to the CBC, upside risks are also associated with possible higher-than-expected wage increases, possible higher-than-expected corporate profit margins and possible higher-than-expected private consumption. On the other hand, it notes that there is a possibility that inflation will be below the estimate of the baseline scenario due to a greater-than-expected reduction in domestic demand.
