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Economy and Finance

Economic forecast for Cyprus

The latest macroeconomic forecast for Cyprus. 

The Cypriot economy surprised on the upside in the first quarter of 2022, mainly as a result of the faster-than-expected recovery of tourism and the continuing expansion of exports of other services, notably business services and IT. Arrivals of tourists and revenues increased considerably in the first months of 2022 and reached around 75% of pre-pandemic levels. The prospects for the sector remain positive for the summer season, based on data on planned international flights and surveys on reservations for tourist accommodation, despite a sizeable loss of the historically important tourism from Russia. However, weakening consumer confidence combined with soaring inflation and increasing interest rates are expected to result in a considerable slowing down of households’ consumption and investments in the second half of the year.

Last update : Summer 2022 Economic Forecast (14/07/2022)

Indicators2020202120222023
GDP growth (%, yoy)-5,05,53,22,1
Inflation (%, yoy)-1,12,37,03,3

On an annual basis, real GDP growth is forecast at 3.2% in 2022 and 2.1% in 2023. The main drivers of growth are expected to be domestic demand and, albeit to a lesser extent, net exports of services. Investment, notably in construction, is expected to suffer from the gradual tightening of financial conditions, persistent supply disruptions and exceptionally high prices for construction materials. On the positive side, the implementation of the Cypriot Recovery and Resilience Plan is expected to support investment. Private consumption is projected to be adversely affected by high inflation and the erosion in purchasing power, even though households’ income is supported by measures adopted by the government to address high energy prices and the partial indexation of wages to be applied in January 2023. Significant uncertainty and downside risks to the growth outlook remain, in particular as tourism and other export-oriented services sectors are vulnerable to the adverse global impact of Russia’s ongoing war of aggression against Ukraine and to the evolution of the COVID-19 pandemic. 

High energy prices are driving up inflation. HICP headline inflation is forecast to average 7% this year and to decelerate to 3.3% in 2023, in line with the assumption that price pressures from tight commodity markets will ease next year. The projection for next year takes into account the impact of the partial automatic indexation of wages.