The Commission lowers expectations for the outlook for the Cypriot economy in its spring forecast.
According to yesterday's publication of the European Commission on May 16, the growth of the Cypriot economy for 2022 is expected to reach 2,3% of GDP from 5,5% in 2021.
At the same time, the inflation forecasts seem to reach quite high levels, namely 6,1%.
Similarly, according to the Commission, unemployment is expected to rise temporarily. In particular, the unemployment rate is projected to rise to around 2022% in 7,8, before continuing its downward trend in 2023 to 7,3% and consequently returning to current levels.
The main reason for the decline in expectations reflected in economic indicators, according to the Commission, is the impact of the Russian invasion of Ukraine.
The ever-rising trend of global inflation, the losses in the income of multinational companies, but also the losses in the pockets of consumers through and from the increase of fuel, create uncertainty as to what is born regarding the smooth course of the market.
The forecasts
According to EU data, "the Cypriot economy started dynamically in 2022, however, the consequences of the war in Ukraine, as well as the relevant sanctions to be imposed on Russia, are expected to have a negative impact on economic activity with an emphasis on its sector. Russia and exports of services, as Russia is an important source of revenue in the Cypriot market ".
At the same time, as explained, "high fuel prices and rising inflation are an additional challenge for the tourism sector."
Exports to Cyprus face the same risk, as it is a particularly vulnerable sector, whose growth prospects have a two-way relationship with the free market.
Tourism is a lifeline
However, according to the same European forecasts, "stronger growth dynamic resumption is expected in 2023, with a GDP growth of 3,5%, as tourism demand seems to recover significantly, and the delayed partial indexation of wages has been set up to support purchasing power ”.
Although economic activity is expected to slow to 2,3% in 2022 due to the effects of the Russian invasion of Ukraine and the spike in inflation, the outlook is more positive for 2023, as tourism and global energy prices are expected to recover further. Specifically, in Cyprus the public finances are going to continue the improvement that was presented last year, with the nominal balance increasing from -1,7% in 2021 to -0,3% in 2022.
Regarding the important role of tourism in the country as a source of revenue through the attraction of tourists, compared to the levels of 2019, tourist arrivals reached 48,7%, while revenues were 56,4%.
Also, the increase of vaccinations to deal with the coronavirus, contributed to the lifting of restrictive measures by strengthening the demand for goods and services through the opening of the market and the free movement of citizens both inside and outside Cyprus.
As a result of these developments, real GDP grew by 5,5% in 2021, exceeding the pre-epidemic level of 2019, while GDP growth is projected to slow down in 2022.
Rising unemployment
According to the Commission, unemployment is expected to rise temporarily. In particular, the unemployment rate is projected to rise to around 2022% in 7,8, before continuing its downward trend in 2023 to 7,3% and consequently returning to current levels. As noted, "the current slowdown in economic activity will put a brake on the labor market later."
The upward trend of unemployment for this year is followed by the inflation of our country, which is expected to reach 5,2% in 2022, from 2,3% in 2021. This is mainly due to the high prices of fuel, which it introduces Cyprus and have been affected by the crisis in the global supply chain. However, in 2023 it is expected that there will be an improvement in energy prices and that inflation will fall to 2,7%.
GDP improvement
The same downward trend seems to be recorded in the public debt of Cyprus, as in 2022 a further improvement to 0,3% of GDP is expected. The abolition of restrictive measures, wage subsidies and support for liquidity in business, combined with the increase in government revenue in 2023, compared to public spending, will reduce the budget deficit to 93,9% and 88,8, respectively. 2022% in 2023 and XNUMX, respectively.
