The Central Bank of Cyprus has revised its 2024 forecast for GDP growth to 3%, from 2.8% that was expected last March, mainly due to the upward revision of domestic demand, while it maintained its forecast for growth in the years 2025 and 2026, at 3.1% and 3.2%, respectively.

According to the CBC's macroeconomic forecasts (June 2024), for the Cypriot economy for the years 2024-2026, GDP revision for 2024 is conservative taking into account the strong economic results of the first quarter of this year, adding that at the same time, it reflects the economic uncertainty due to the fragile external environment.

In relation to the March 2024 forecasts, the CBC slightly revised downwards the unemployment rate in 2024 by 0.1 percentage point, to 5.7%, maintaining its forecasts for the years 2025 and 2026, while upgrading its forecasts for harmonized inflation in 2024, by 0.1 percentage points, to 2.1%, and lowering them by 0.1 percentage points, in 2025 and 2026.

Noting that the labour market continues to support the Cypriot economy and unemployment is expected to decrease to 5.7% of the workforce in 2024 compared to 6.1% in 2023, it says that in line with expected GDP growth, unemployment is expected to further decrease to 5.6% in 2025 and 5.3% in 2026, approaching full employment conditions.

According to the CBC, inflation (Harmonized Index of Consumer Prices, HICP) is forecast to decline to 2.1% in 2024 compared to 3.9% in 2023. For the years 2025 and 2026, the HICP is expected to slow further down to 1.9% and 1.8%, respectively.

"The risks for deviation from the basic forecast scenario are assessed overall as balanced for 2024 and slightly upward for the years 2025 and 2026", it notes. 

The CBC says that "upside risks come mainly from possible higher than expected energy prices as well as impacts related to climate change -implementation of relevant tax policies, extreme weather events."

According to the CBC, upside risks are also associated with possible higher-than-expected wage increases, possible higher-than-expected corporate profit margins and possible higher-than-expected private consumption.

On the other hand, it notes that there is a possibility that inflation will be below the estimate of the base scenario due to a greater than expected reduction in domestic demand and in general economic activity in the event that the impact of monetary policy turns out to be stronger than expected as well as due to increased geopolitical tensions.

According to the macroeconomic forecast of the Central Bank for the Cypriot economy for the years 2024-2026, the GDP growth rate for 2024 is expected to rise to 3%, compared to 2.5% in 2023, while in the years 2025 and 2026 GDP growth is expected to rise by 3.1% and 3.2%, respectively.

It says that in the short term, GDP is expected to grow at a slightly faster pace than March 2024 forecasts due to the momentum from the better than expected economic results of the first quarter of 2024 as regards  the course of private consumption, investment and services exports (tourism and technology services).

In the medium term, it adds, the projected course of GDP is mainly due to the expected further rise in domestic demand as well as the recovery of external demand expected from 2025 onwards.