The Central Bank of Cyprus (CBC) has revised its GDP growth projection for 2024, increasing it by 0.2 percentage points to 3.7%, according to an announcement on Thursday. This optimistic adjustment reflects stronger domestic demand, with private consumption playing a significant role. The continued resilience of the Cypriot economy underpins this forecast.
Adjustments to Long-Term Growth Projections
While 2024’s outlook has improved, the CBC has slightly downgraded GDP forecasts for 2025 and 2026. The revision is attributed to rising imports needed to meet higher domestic demand. Despite robust export performance, particularly in non-tourism services, these gains are insufficient to fully offset the impact of increased imports.
Labour Market Nears Full Employment
The labour market remains a key strength, with unemployment expected to drop to 5% in 2024, down from 5.8% in 2023. This positive trend is projected to continue, with unemployment rates forecast to reach 4.9% in 2025, 4.7% in 2026, and 4.6% in 2027. These figures suggest the economy is approaching full employment conditions.
The downward revision of the 2024 unemployment rate by 0.1 percentage points reflects the improved GDP outlook, emphasizing the close link between economic growth and labour market performance.
Inflation Stabilizes Towards Target
Inflation, measured by the Harmonized Consumer Price Index (HICP), is expected to decline from 3.9% in 2023 to 2.2% in 2024, aligning with the medium-term target of 2%. This moderation is attributed to reduced external inflationary pressures, such as lower energy and raw material costs, alongside the lagging effects of the eurozone’s monetary policy.
Wage growth is anticipated to remain moderate, minimizing inflationary impacts, while the gradual introduction of a green carbon tax in 2025 could lead to marginal increases in fuel prices. Core inflation—excluding energy and food—is forecast to decline steadily, reaching 2.6% in 2024 and stabilizing at 2.0% by 2027.
Risks and Future Prospects
The economic outlook for 2024 is balanced, though projections for 2025-2027 reflect slightly heightened downside risks.
Key Risks Include:
Potential Upside Factors:
Inflation Risks:
For 2024, inflation risks remain balanced, but for 2025-2027, the outlook tilts slightly upward. Factors such as geopolitical escalations, higher energy prices, and climate-related events could drive inflation beyond baseline forecasts. Conversely, slower financing improvements or global economic weakness might suppress inflationary pressures.
The CBC’s projections highlight both opportunities and challenges for the Cypriot economy as it navigates the evolving global landscape.
Source: Stockwatch Cyprus