CBC Governor: Cyprus to record above euro area average growth in 2023

The Cyprus economy is expected to grow by 2.5% in 2023, well above the euro area average of 0.5%, according to Governor of the Central Bank of Cyprus (CBC) Constantinos Herodotou.

He was addressing the Annual Cyprus Maritime Forum in Limassol on Tuesday, where he said that the shipping sector has been an important pillar of Cyprus’ economic success.

Herodotou said the economy showed notable resilience in 2022, recording significant growth of 5.6% despite the negative international environment. This was partly due to higher-than-expected activity in the tourism industry, Cyprus’ non-dependence on Russian gas, and the fact that the Cypriot banking sector has very limited exposure to the Russian economy; and was therefore not affected by the sanctions on Russia.

He added that according to the latest CBC forecasts in December 2022, the Cyprus economy is expected to grow 2.5% this year, which compares well to the euro area average of 0.5%, and inflation is expected to decelerate in 2023, levelling at 3.3%, from 8.1% in 2022.

Another important contributing factor, said Herodotou, was that local economic growth was supported by fresh lending from the banking sector as well as by foreign direct investment. Also, new incentives –such as the introduction of a fast-track process for incoming firms – have attracted a large number of high value-adding foreign companies to Cyprus, such as major multinational firms in the Information, Communication and Technology industry, thus supporting the Cypriot GDP and reinforcing the vision to transform Cyprus into an emerging technology hub in the Mediterranean.

Cyprus’ importance as a foreign investment hub is also reflected in the Greenfield FDI Performance Index, created by FDI Intelligence, according to which in 2021, Cyprus ranked 18th out of 84 countries (climbing by 50 places compared to 2020), he added.

The shipping sector is another important pillar of Cyprus’ economic success, noted Herodotou, with Limassol as Cyprus’ maritime capital being the home of influential names in the shipping industry, boosting the country to the top ranks of the sector.

He added that Cyprus is the EU’s largest third-party ship management centre, one of the largest in the world, while the importance of the sector is evident in the balance of payments data where it ranks third in terms of its contribution to the total value of exports of services at 19% for 2021, after the financial services and ICT sectors, with contributions of 32% and 23%, respectively.

Challenges for policy makers include the global inflation dynamics currently being addressed by central banks, with monetary policy being utilised at a different pace in different regions, due to the differences in economic fundamentals, Herodotou noted.

Regarding the shipping sector, he said it will remain the backbone of the global economy, adding that Cyprus continues to strengthen its role in the shipping sector as a hub for ship management, ship owning and vessel chartering services, aiming to maintain and enhance further the competitiveness and prospects of the sector.