CypERC revises 2025 growth rate by -0.5%

The Economic Research Centre of the University of Cyprus (CypERC) revised its 2025 growth rate forecast by 0.5% downwards, projecting it to go from 3.4% in 2024 to 2.8%, before improving to 3.2% in 2026.

In its April Economic Outlook, CypERC noted that Cyprus’ robust economic performance in 2024, along with disinflation and declining interest rates, is expected to support growth in the coming quarters. However, growth in trading partner economies has remained muted, while trade policy uncertainty has been on the rise since January, weighing on domestic growth prospects.

Compared to the January Outlook, the growth forecast for 2025 has been revised downwards by 0.5%. According to CypERC, the downward revision to the 2025 forecast was driven by both domestic and external developments. On the domestic front, the outlook was affected by lower-than-expected growth in the last quarter of 2024 and a slight weakening in some leading indicators in the first quarter of 2025. Muted growth and subdued economic sentiment in trading partner economies, along with elevated trade policy uncertainty, also dampened the outlook for Cyprus.

Nevertheless, the Centre noted that the labour market performance has remained robust and financing conditions have eased further, leading to a slightly higher growth rate for 2026 (by 0.2%) compared to the January projections.

Inflation (based on the Consumer Price Index) is projected at 1.5% in 2025 and at 1.8% in 2026. Compared to the January issue, the forecast for 2025 has been revised downwards by 0.2%, mainly due to low inflation in Cyprus during February and March, and new declines in international oil prices in the first quarter of 2025. The inflation forecast for 2026 has been revised upwards by 0.2%, as domestic activity growth is expected to pick up.

Since the January forecasts, CypERC said that trade tensions have escalated, leading to increased volatility in international financial markets. Elevated uncertainty surrounding international trade policies, coupled with existing geopolitical uncertainties, has considerably clouded global growth prospects, raising the risk of slower growth in Cyprus compared to the forecasts provided in this issue.

(Source: CNA)