Filenews 27 April 2025 - by Angelos Angelodimou
The fact that the Cypriot economy recorded a positive course in 2024 is also reflected in an analysis by the Fiscal Council. Taking note of the encouraging and worrying data of the economy, it becomes clear that the positive elements outweigh the positives. This, of course, does not mean that negative elements should take a back seat, as these are issues which, if not resolved, will grow and create a serious threat to the prospects of our future course.
Besides, in the last few days, there has been a barrage of downward revisions to the growth rate of the economy, which started with the IMF, continued with the Ministry of Finance and proceeded with the Centre for Economic Research of the University of Cyprus.
All this is due to the ongoing trade war between the world's two superpowers, the United States and China, which is causing instability and uncertainty in the international environment.
Encouraging Facts
More specifically, after analysing the course of the economy for 2024, the Fiscal Council focuses on some positive and some negative elements.
Specifically, the Fiscal focuses on six positive and two negative elements, to which, however, it attaches particular importance.
As far as encouraging data are concerned, the Fiscal Administration considers the significant increase in revenues, by €1 billion, or 7.8%, to be a particularly positive development. As reported, the normalization of revenues continues, but at a steady pace, without a sharp decrease. The explanation given is that the increase in revenues is driven by: (a) Increase from taxes, (€790 million), or 10.25%, and (b) From sales (€240 million or 28%).
Subsequently, the Finance Committee deals with the issue of expenses, highlighting two important elements. Specifically, as it states, significant expenditure restraint is recorded, with an increase of only 1.5%, or €197 million, as well as the containment of interest, where we had an increase of €25 million.
The surplus is the next element, which the Fiscal Council highlights, always with regard to the positive elements of the economy that it has identified. Specifically, it points out that the Central Government maintained a small surplus of €68 million showing that it can be balanced. It is also added that the surplus gives a lot of room for the fiscal trajectory to return to track under the new Economic Governance Rules.
Worrying figures
As for the worrying elements of the economy, which the Fiscal Council has identified, these focus on the reduction of development spending, but also on the government's obligations towards the Social Insurance Fund.
In particular, there is talk of a reduction in capital/development expenditures by €381 million for the General Government and €450 million for the Central Government. Specifically, from 4.4% of expenditures, development expenditures were reduced to 1.5% for the General Government.
With regard to the second part, it is reported that 94% of the surplus comes from the Social Insurance Fund, which recorded a surplus of €1.4 billion. The Government's obligation to the Social Insurance Fund amounts to €12.03 billion. (Dec. 2024).
It is worth noting here that this issue has been of concern to various bodies and especially the social partners from time to time and will probably also be discussed in the context of the reform of the pension system, as the possibility of the government's debt escaping is an element that raises serious concerns.
The uncertainty of 2025
As far as 2025 is concerned, as it emerges from the data so far, this may not be judged so much by the fiscal data, but by how long the uncertainty and anxiety will last on the international scene due to the trade war of the superpowers.
Already, the IMF has downgraded its estimates for the growth rate of the Cypriot economy, estimating for 2025 that it will be limited to 2.5% of GDP, contrary to previous estimates, which wanted the growth rate to be 3.1%. In addition, for 2026 the IMF estimates a growth rate of 2.7%. In the 2025 budget, the Ministry of Finance estimated growth for the year at 3.1% and for 2026 at 3.2%. As reported in April's World Economic Outlook, the IMF estimates that the sharp increase in tariffs and consequent uncertainty, "will lead to a significant slowdown in global growth in the near future." As a result, the April estimates, published on Tuesday, show a slowdown in growth in most developed and emerging economies, compared with the October estimates.
The Ministry of Finance is also rethinking it
This was followed by the position of the Minister of Finance, who, commenting on the latest IMF estimates for a growth rate of 2.5% in Cyprus in 2025, instead of 3.1% as the October estimates were, said that "we live in a period of great uncertainty and with a fluid economic environment. Due to the uncertainty that exists about developments, it is logical to have a downward estimate for various economic figures both globally and at the European level and in the international financial markets."
In this context, he also included the IMF's estimate of a lower growth rate of the Cypriot economy in the April forecasts, noting, however, that "the IMF always has more conservative calculations".
Mr. Keravnos added that "in the next period of time, for the next period of the Medium-Term Fiscal Plan, our forecasts will have a marginally lower growth rate."
Finally, the Centre for Economic Research (JIT) of the University of Cyprus has also revised downwards its forecast for the growth rate of Cyprus' real GDP for 2025, downgrading it by 0.5 percentage points to 2.8%, according to the April issue of the "Economic Outlook".
The downgrade is attributed to the low growth rates of the country's trading partners and the increased uncertainty around international trade policies. For 2026, the JIT forecasts an improvement in the growth rate to 3.2%.
