Cyprus’ economic growth has slowed down, but inflation is decreasing. The European Commission has published its interim economic forecast for 2024.
Real GDP growth in Cyprus from the first to the third quarter of 2023 showed a slowdown to 2.5% compared to 5.8% in the same period of 2022, mainly due to a decrease in demand for non-tourist services. In 2023, the tourism sector continued to grow, with the number of visitors to the island increasing by 20%.
According to the forecast, real GDP growth will be 2.8% in 2024 and 3% in 2025, slightly higher than in the previous interim report. Economic sentiment among the population and businesses in Cyprus improved in January 2024.
Drivers of GDP growth
The main driver of GDP growth in 2024 and 2025 will be the domestic market. The automatic indexation of wages for most employees helps to maintain their purchasing power.
Private consumption remains active due to the increase in real wages and employment, which has grown by 1.6%.
Large investment projects in real estate, healthcare, transportation, and tourism, partly financed by the Recovery and Sustainability Fund, also contribute to economic growth. The contribution of exports to the Cypriot economy will remain weak due to unstable relations with major trading partners and high import demand for the implementation of investment projects.
Inflation
The Harmonized Index of Consumer Prices (HICP) decreased to 3.9% in 2023 from 8.1% a year earlier. Inflation is expected to continue to decline and reach 2.4% in 2024 and 2.1% in 2025, in line with the decline in the cost of energy and other goods.
EU Commissioner for Economy Paolo Gentiloni noted during the presentation of the winter interim forecast in Brussels that the EU economy entered 2024 with weaker indicators than expected. Growth was 0.5% in 2023 instead of the projected 0.6%. In 2024, the EU economy is expected to grow by 0.9% instead of the previously announced 1.3%, and by 1.7% in 2025.
The level of inflation in the EU will also fall. In 2023, the HICP was 6.3%, in 2024 it is expected to decrease to 3%, and in 2025 – to 2.5%.
Key factors to watch:
- The impact of the war in Ukraine on the global economy and energy prices
- The implementation of the Recovery and Sustainability Fund in Cyprus
- The performance of the tourism sector
The economic outlook for Cyprus in 2024 is positive, but there are some risks to the downside. The war in Ukraine and the high energy prices could have a negative impact on the economy. However, the implementation of the Recovery and Sustainability Fund and the strong performance of the tourism sector are expected to support economic growth.
