CBC leaves projections for 2023 growth unchanged at 2.6%

The Central Bank of Cyprus (CBC) said that the Cypriot economy will expand by 2.6% in 2023, noting that the more positive developments observed in the first months of the year in relation with private consumption will offset any impact of the sanctions imposed on Russia following its invasion of Ukraine.

In its June macroeconomic projections, the CBC has marginally revised downwards its estimate for 2024 by 0.2% to 2.8% due to the expected impact of the sanctions against Russia on the services sector, maintain its projection for 2025 unchanged to 3.1%.

“Private consumption, albeit estimated to decelerate, is expected to remain a significant driver to economic growth in the next years and to a lesser extend to exports,” the CBC said.

Consumption, the CBC, will be boosted by the inflow of foreign companies established in Cyprus in the field of technology and the continued increase in revenue from tourism which recovered to the pre-pandemic levels in the first three months of the year.

Furthermore, large private investments on projects underway, projects for the digital and green transition, as well as reforms in the context of the Recovery and Resilience Plan will also contribute to economic growth.

The CBC left its projections on inflation (Harmonised Index of Consumer Prices) broadly unchanged to 3.3% in 2023 from a record 8.1% last year, whereas the HCIP will further decline to 2.3% and 2.0% in 2024 and 2025 respectively, driven by the correction in energy prices and the eradication of disruption in supply chains and the expected impact of rising interest rates.

According to the CBC, unemployment will decline marginally to 6.7% of the labour force this year from 6.8% in 2022, noting that this is due to the “continued tightness” in the labour market despite the continuing war in Ukraine. In 2024 and 2025 unemployment is projected to drop to 6.1% and 5.6% respectively.

The projections are marginally revised upwards by 0.1% and 0.2% in 2024 and 2025 respectively, reflecting the somewhat more contained growth rates due to the impact of sanctions on the services sector, the CBC said.

However the CBC said risks to the outlook are tilted to the downside and are mainly associated with possible more negative prospects in the external environment than expected and lower than expected performance in the field of exports and tourism.

Upside risks are associated with possible higher than expected implementation of investments in the private sector and better performance in the tourist sector.