growth and falling inflation

Growth in Cyprus is expected to reach 5.8% in 2022 before falling to 1.6% in 2023, according to the Commission's winter forecasts.

The Commission estimates that in 2024 the GDP growth rate in Cyprus will reach 2.1%.

Regarding inflation, it is estimated that it will follow a downward path from 8.1% in 2022, to 4% in 2023 and 2.5% in 2024.

As reported, GDP continued its steady growth momentum, rising 6.1% in the first three quarters of 2022 compared to the same period last year.Despite rising inflation, private consumption remained strong, supported by rising employment and wages, and supported by targeted government measures to offset high energy prices.

It is noted that tourism also played a role as arrivals recovered ground lost during the pandemic and reached 80% of 2019 levels. In addition, exports of business services increased significantly. On an annual basis, real GDP growth is estimated to have increased by 5.8% in 2022.

Economic sentiment among consumers and businesses improved slightly in January 2023.

It is emphasized that the improved economic outlook among Cyprus' trading partners is expected to further support tourism, which is expected to reach almost the level of 2019.

As for the 50% wage indexation implemented in January 2023, it is expected to support purchasing power somewhat. However, it is emphasized, the increase in interest rates is expected to negatively affect corporate investment and housing construction.

Higher prices and tighter monetary policy are expected to weigh on real GDP growth, which is forecast to slow to 1.6% in 2023, before accelerating to 2.1% in 2024.

HICP inflation reached 8.1% in 2022, fueled by high energy prices and supply bottlenecks.

HICP inflation is expected to moderate over the forecast horizon as falling gas and oil prices dampen energy inflation and supply disruptions ease further.

Conversely, wage inflation is expected to put some upward pressure on core inflation. Overall, HICP inflation is projected to hold at 4% in 2023 and 2.5% in 2024.

The EU economy is on a better footing.

As for the EU economy, it is reported that almost a year after the start of Russia's war of aggression against Ukraine, the EU economy entered 2023 on a better footing than was forecast in the autumn. According to the winter interim forecast, the growth outlook for this year is 0.8% in the EU and 0.9% in the euro area. Both regions are now forecast to briefly avoid the technical recession expected for the end of the year. The forecasts also slightly lower inflation projections for both 2023 and 2024.

The projected growth based on the 2023 winter interim forecast of 0.8% in the EU and 0.9% in the euro area is respectively 0.5 and 0.6 percentage points higher than in the autumn forecast. The growth rate for 2024 remains unchanged at 1.6% and 1.5% for the EU and the euro area, respectively. By the end of the forecast horizon, production volume is expected to be nearly 1% higher than the volume projected in the fall forecast.

After peaking in 2022, inflation is expected to decline over the forecast horizon. Inflation forecasts were revised down slightly compared to the autumn, mainly reflecting developments in the energy market. Headline inflation is projected to decline from 9.2% in 2022 to 6.4% in 2023 and to 2.8% in 2024 in the EU. In the euro area, it is projected to slow from 8.4% in 2022 to 5.6 % in 2023 and to 2.5 % in 2024.

Source: stockwatch.com.cy

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