Filenews 14 July 2022
Growth is expected to reach 3.2% this year and annual inflation is expected to reach 7%, were the Commission's estimates for Cyprus in the context of the summer forecasts it released.
In particular, the Cypriot economy surprised upwards in the first quarter of 2022, mainly as a result of the faster-than-expected recovery of tourism and the continued expansion of exports of other services, especially business services and IT. Tourist arrivals and revenues increased significantly in the first months of 2022 and reached about 75% of pre-pandemic levels. The sector's outlook remains positive for the summer season, based on data on scheduled international flights and surveys for tourist accommodation bookings, despite the significant loss of historically significant tourism by Russia. However, the weakening of consumer confidence coupled with soaring inflation and rising interest rates is expected to lead to a significant slowdown in household consumption and investment in the second half of the year.
We will be left with inflation in 2023, hopefully at a reduced level
On an annual basis, real GDP growth is projected at 3.2% in 2022 and 2.1% in 2023. The main drivers of growth are expected to be domestic demand and, albeit to a lesser extent, net exports of services. Investment, in particular in construction, is expected to suffer from a gradual tightening of economic conditions, persistent supply disruptions and extremely high prices of building materials. The positive thing is that the implementation of the Cyprus Recovery and Resilience Plan is expected to support investments. Private consumption is expected to be negatively affected by high inflation and the erosion of purchasing power, although household income is supported by measures taken by the government to address high energy prices and the partial indexation of wages to be implemented in January 2023. Uncertainty and downside risks to the growth outlook persist, in particular as tourism and other export-oriented service sectors are vulnerable to the negative global impact of Russia's ongoing aggressive war against Ukraine and the evolution of the COVID-19 pandemic.
High energy prices increase inflation. Headline HICP inflation is projected to average 7% this year and to slow to 3.3% in 2023, under the assumption that price pressures from tight commodity markets will ease next year. The forecast for next year takes into account the impact of the partial automatic indexation of wages.
