A spotlight on the most important economic developments of 2024

In 2024, the Cypriot economy demonstrated notable resilience and positive developments, achieving an estimated growth rate of 3.7%.

This performance was bolstered by increased domestic demand and a stable labour market, with significant contributions from sectors such as tourism, construction, and wholesale and retail trade.

The unemployment rate hovered around 5%, indicating near-full employment conditions.

A key achievement was the stabilisation of inflation, estimated at approximately 2.2% for 2024, down from 3.9% in 2023.The country maintained a robust fiscal surplus, recording €867.5 million in the third quarter, and continued to reduce public debt, aiming for 56.7% of GDP by 2026.

Despite these positive indicators, there was a heightened emphasis on vigilance against economic risks stemming from geopolitical developments in the region and internal challenges.

Concerns included non-performing loans from previous years, an increased public wage bill, deficits in pension funds of semi-governmental organisations and local authorities, activation of state guarantees, and potential compensations from court decisions amounting to tens of millions.

In response, the government implemented measures to support the real economy and vulnerable groups, including reducing energy costs for disadvantaged social groups, providing housing solutions, and applying zero VAT on essential goods.

The year commenced amid significant geopolitical uncertainty following the Hamas attack on Israel in October 2023, raising global fears of surging oil prices that could reignite inflationary pressures.This situation emerged just as central banks were anticipated to begin lowering interest rates to support consumption and enhance economic growth.

By December 2023, inflation in Cyprus had significantly declined to 3.5%, down from 8.1% in December 2022. This downward trend continued into 2024, with inflation reaching 2.2% by October, aligning with the government's projections.

The Cypriot economy's robust performance was acknowledged by international credit rating agencies. In October 2024, Moody's upgraded Cyprus's credit rating to investment grade after eleven years, assigning a rating of Baa3 with a stable outlook. This upgrade was attributed to the country's strong economic performance, prudent fiscal policy, and significant reduction in public debt. Other agencies, including Standard & Poor's and Fitch Ratings, also provided positive evaluations, reflecting confidence in Cyprus's economic stability.

However, the year was not without challenges. The labour market faced tensions, particularly concerning the implementation of the Cost of Living Allowance (COLA) mechanism. Disagreements between employers and trade unions led to strikes and industrial actions, notably in the hotel industry and public transport sectors. The government intervened to mediate, resulting in temporary agreements, but the need for a comprehensive review of the COLA mechanism remains a topic of debate.

In the energy sector, Cyprus made strides toward enhancing its energy independence and sustainability. The inauguration of the LNG import terminal in Vasilikos marked a significant milestone, enabling the country to diversify its energy sources and reduce reliance on oil. Additionally, investments in renewable energy projects increased, aligning with the European Union's green transition goals.

Overall, 2024 was a year of economic growth and development for Cyprus, characterised by resilience in the face of external and internal challenges. The government's proactive measures and the private sector's adaptability played crucial roles in sustaining economic stability and fostering a positive outlook for the future.

(Source: InBusinessNews)