Real activity growth in Cyprus projected to gather momentum

Real activity growth in Cyprus is projected to gather momentum over 2024 – 2025, the Economics Research Centre of the University of Cyprus (CypERC) said in its July economic outlook.

"Real activity growth in Cyprus is projected to gather momentum over 2024 – 2025, driven by robust demand and a tight labour market, the easing of inflationary pressures, as well as the gradual declines in interest rates because of monetary policy normalisation" it says.

It adds that real GDP growth is forecast at 3.0% in 2024 and at 3.3% in 2025.

Relative to the April issue, the growth forecast for 2024 has been revised up by 0.4 percentage points, as real GDP growth in the first quarter of 2024 surprised on the upside and labour market conditions improved further in the second quarter of the year. The forecast for 2025 has remained unchanged from that in the April issue.

Inflation (based on the Consumer Price Index) is projected to continue to decline in 2024 and 2025, driven by disinflation in previous quarters that was supported by the easing of price pressures from international commodities and tight financing conditions. Inflation is forecast at 2.1% in 2024 and at 2.0% in 2025, higher by 0.1 percentage point in each year relative to the April issue.

"The upward revisions resulted largely from an increase in domestic inflation in the second quarter of 2024 (mainly owing to a pickup in energy prices), persistently high inflation rates in services and robust economic activity" it says.

The main risks to the outlook for growth and inflation are associated with the disinflation process, the pace of monetary policy normalisation, the external economic environment, geopolitical tensions, large investment projects, and climate hazards, the CypERC points out.