The Cypriot economy will register a growth rate of 2.8% in 2024, the Central Bank of Cyprus (CBC) said on Friday, upgrading its December projection by 0.2%, citing more optimistic assumptions in domestic demand which have offset less favourable projections on tourism, and professional services export, due to the fragile external environment.

The CBC left its projection for 2025 and 2026 unchanged to 3.1% and 3.2% respectively. Furthermore, harmonised inflation is expected to accelerate its downward path in 2024 dropping to 2%, whereas labour market is proving resilient to external shocks.

According to the CBC, the upgrade of GDP growth projection this year is due to the upward revision of the prospects for domestic demand, which has offset the less favourable assumptions concerning tourism and export of professional services due to the fragile environment.

In the medium term, the Cyprus GDP will be mainly driven by domestic and foreign demand.

“Domestic demand will be supported by the recovery of households’ real disposable income, as a result of the decline of inflation, increases in wages and the resilience observed in the labour market,” the CBC added, noting that no significant impact has been registered on the implementation of private investment due to the conflict in the Middle East.

Moreover, the CBC noted that the labour market will continue to underpin the Cypriot economy, as unemployment is projected to decline to 5.8% this year, a projection improved by 0.2% compared with the previous projection. For 2025 and 2026 unemployment rate is projected to further decline to 5.6% and 5.3%, edging close to conditions of full employment, the CBC added.

According to CBC projections, the hamonised Index of Consumer Prices (ICP) is projected to decline to 2% in 2024 and 2025 and to drop to 1.9% the year after, slicing its December projection for a 2.4 inflation this year.

“The further decline of the harmonised ICP will be driven by the weakening of inflationary pressures, which have been created in the previous years by exogenous factors, as well as the impact of the monetary policy which continues to act in restrictive manner,” the CBC added.