Cyprus Economic Growth Set to Accelerate by 2025

Jun 6, 2024 | Cyprus Economy, Latest News

Real GDP Growth Forecasts and Economic Resilience

The Cyprus economy is projected to experience steady growth in 2024, with a significant acceleration anticipated in 2025, according to the latest Economic Outlook by the University of CyprusEconomics Research Centre. The report forecasts a real GDP growth of 2.6% in 2024 and 3.3% in 2025. These figures reflect an upward revision of 0.2 percentage points for 2024 and 0.1 percentage points for 2025 compared to earlier predictions.

Economic Performance Overview

In 2023, Cyprus witnessed a slowdown in economic growth to 2.5%, down from 5.1% in 2022. Despite this deceleration, the year-on-year growth rate of real GDP for the final quarter of 2023 remained at 2.2%, surpassing the EU average. This resilience was fueled by a tight labor market, increased earnings, and a strong fiscal position.

Factors Supporting Growth

  • Falling Inflation: The reduction in inflation rates over the last two quarters bolstered domestic economic activity.
  • Tight Labor Market: Continued tightness in the labor market has contributed to sustained economic performance.
  • Fiscal Strength: Strong fiscal policies have provided a stable backdrop for growth.

Challenges and Outlook

Despite positive indicators, several challenges could impact the growth trajectory:

  • High Domestic Interest Rates: Elevated interest rates within Cyprus.
  • Economic Sentiment: A decline in domestic economic confidence.
  • Weakness in Trading Partner Economies: Sluggish activity in key trading partners.

Comparative Forecasts

Other major organizations align with the University of Cyprus’ positive outlook:

  • Central Bank and European Commission: Project a 2024 growth rate of 2.8%.
  • International Monetary Fund (IMF): Forecasts a slightly lower growth of 2.7% for 2024.

For 2025, these organizations predict growth rates of:

Inflation Projections

CPI inflation is expected to follow a downward trend, forecasted at 2.0% in 2024 and 1.9% in 2025, marginally lower than earlier projections due to easing domestic inflation.

Risks to the Outlook

Potential risks to economic growth and inflation include:

  • Geopolitical Tensions: Particularly in the Middle East.
  • Trading Partner Economies: Performance fluctuations.
  • Interest Rates: Future interest rate movements.

In summary, while Cyprus faces several economic challenges, the University of Cyprus’ report highlights a promising outlook with expected growth acceleration by 2025, supported by a resilient labor market and strong fiscal policies.

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