The Central Bank of Cyprus has revised its economic growth projections for 2023 and 2024, indicating a slight downturn compared to its earlier forecasts in June.
In its September macroeconomic projections released Monday, the Central Bank anticipates GDP growth of 2.4% for 2023 and 2.7% for 2024, down from its previous estimates of 2.6% and 2.8%, respectively.
These downward revisions are primarily attributed to the impact of Western sanctions imposed against Russia due to the ongoing conflict in Ukraine, the CBC said in an announcement. The sanctions have negatively affected the professional services sector, alongside the fragile external economic environment, particularly impacting non-tourism services.
However, the Central Bank maintains its projection of 3.1% GDP growth for 2025, stressing that in the first half of this year, Cyprus maintained a relatively robust annual growth rate of 2.7%, surpassing the Euro area average of 0.9%.
The revised growth projections are grounded in strong domestic demand, with significant contributions expected from ongoing investments and projects related to digitalisation and green growth, funded by the Recovery and Resilience Facility. Private consumption, albeit at a slower pace, is projected to remain a key driver of economic growth in the foreseeable future.
Furthermore, the Central Bank has adjusted its projections for the harmonized consumer price index, estimating increases of 3.9% in 2023 and 2.7% in 2024, up by 0.6% and 0.4%, respectively, compared to the June forecasts. These changes are attributed to expected rises in energy and food prices. Projections for core inflation, which exclude energy and food, remain steady at 3.7%, 2.5%, and 2.4% for 2023, 2024, and 2025, respectively.
Regarding employment, the Central Bank reported improved projections for unemployment rates, anticipating rates of 6.3% and 5.9% for 2023 and 2024, respectively. These figures mark a reduction of 0.4% and 0.2% compared to previous forecasts. The projection for 2025 remained unchanged at 5.6%.
The Central Bank highlighted the resilience of the Cyprus labour market despite the challenges posed by the ongoing conflict in Ukraine. This resilience is evidenced by the decline in the unemployment rate from 6.8% in the first quarter of the year to 5.9% in the second quarter, surpassing expectations in the face of sanctions’ effects on the services sector.