The European Commission published its Winter 2024 Economic Forecast for countries of the bloc, lowering the growth outlook for this year and setting inflation on a lower downward path than projected last autumn.
The growth outlook for 2024 is revised down to 0.9% in the EU and 0.8% in the euro area.
In 2025, economic activity is still expected to expand by 1.7% in the EU and 1.5% in the euro area.
Cyprus
In Cyprus, real GDP growth slowed down to 2.5% in the first three quarters of 2023 (year-on-year) compared to 5.8% for the same period of 2022, mainly due to a lower external demand for non-tourism services, the Commission noted.
“Still, demand for tourism services continued its rebound in 2023, with arrivals increasing by 20.1%, almost reaching pre-pandemic levels,” it added.
However, private consumption remained robust, supported by real wage increases and continued employment growth of 1.6%.
For the whole of 2023, economic activity is expected to have grown by 2.4%, slightly higher than in the Autumn 2023 Forecast, following 5.1% in 2022.
2024-2025
In 2024 and 2025, real GDP in Cyprus is expected to grow by 2.8% and 3% respectively, slightly stronger than the forecast in autumn for both years.
Economic sentiment among consumers and businesses slightly improved in January 2024.
Domestic demand is expected to continue being the main driver for real GDP growth in 2024 and 2025, as automatic wage indexation for around half of the employees (covered by collective agreements in the public and private sector) holds up their purchasing power.
Large investment projects in real estate, healthcare, transport and tourism, partly supported by the Recovery and Resilience Facility, are also set to boost growth.
By contrast, the contribution of net exports is expected to remain weak due to the ongoing economic uncertainty in Cyprus’ main trading partners and to the strong import demand induced by investments.
Inflation
Harmonised index of consumer prices (HICP) inflation slowed down to 3.9% in 2023, from 8.1% in 2022, mainly reflecting lower energy prices.
HICP inflation is set to moderate to 2.4% in 2024 and to 2.1% in 2025, in line with an assumed continued expected decline in prices for energy and other commodities.
By contrast, wage indexation is expected to exert some upward pressure on HICP inflation excluding energy and food.
Compared to autumn, the forecast for HICP inflation is revised down for 2024 but is broadly unchanged for 2025.
(Photo by George Christophorou)