15.07.2022
The European Commission said on Thursday that the Cypriot economy outperformed expectations in the first quarter of 2022, with a number of sectors outperforming forecasts.
“The Cypriot economy unexpectedly grew in the first quarter of 2022, mainly as a result of a faster than expected recovery in tourism and the continued expansion of exports of other services, especially business services and IT ,” the commission said in a statement. its latest economic forecast.
The report added that the number of tourists and income from them increased significantly in the first months of 2022, reaching about 75% of their pre-pandemic level.
Moreover, the outlook for the tourism sector for the summer season remains positive despite the significant loss of Russian tourists, a market that Cyprus has relied heavily on in the past.
This expectation is based on data on scheduled international flights, as well as surveys of hotel bookings and other forms of tourist accommodation.
However, the commission warned that eroded consumer confidence, coupled with rising inflation and higher interest rates, would hit the economy in the second half of the year.
This will slow down both household consumption and business investment during this period.
The Commission forecasts Cyprus GDP to grow by 3.2% year-on-year at the end of 2022, with 2.1% GDP growth projected for 2023.
In addition, inflation will reach 7% in 2022 before falling to a more manageable 3.3% in 2023.
The commission said domestic demand will be the main driver of growth, with additional growth coming from net exports of services.
Investment is expected to decline, especially in sectors such as construction. This is primarily due to the gradual tightening of financial conditions, persistent disruptions in supply chains that are expected to remain the same, and extremely high prices for building materials. The rising cost of building materials has already affected the sector in Cyprus, leading to a decrease in activity compared to previous years.
However, the commission noted that “on the positive side, the implementation of the Cyprus recovery and resilience plan is expected to support the investment.”
The report added that “personal consumption is projected to be negatively impacted by high inflation and declining purchasing power, even as household incomes are supported by measures taken by the government to address high energy prices and partial wage indexation applied . in January 2023.”
Moreover, the negative global impact of the war in Ukraine, as well as the related sanctions imposed on Russia, continue to be a source of uncertainty and a risk of deterioration in the economic growth prospects of Cyprus.
This also applies to the coronavirus pandemic and how it will develop in the coming months.
The Commission explained that the tourism and export services sectors are particularly vulnerable to these risks.
“High energy prices are fueling inflation, with headline HICP inflation projected to average 7% this year and ease to 3.3% in 2023, on the assumption that price pressures from tight commodity markets ease in next year” . noted in the report.
“The forecast for next year takes into account the impact of partial automatic wage indexation,” the commission concluded.
