13.03.2024
The Cyprus economy has demonstrated its strong resilience during a particularly difficult period, recording “comparatively one of the highest growth rates in the European Union”, said Dr George Mounties , CEO of Delfi Partners . This was all the more remarkable given the concerted efforts to contain inflation through strategic monetary policy decisions, which, according to Mounties , “appear to be successful in Cyprus”.
According to the latest forecasts from the European Commission, the growth rate of the Cypriot economy in 2023 will be 2.4%. In addition, “its growth is estimated to be 2.8% in 2024 and 3% in 2025.” On the other hand, inflation, which was a major concern at 8.1% in 2022, fell to 3.9%. Mounties is optimistic that “it is expected to decline further to 2.4% in 2024 and 2.1% in 2025.”
Given wider economic and geopolitical developments, the outlook for the Cypriot economy is positive. However, Mounties acknowledges short-term challenges. “Of course, in order to achieve containment of inflation, decisions were made that affect the incomes of citizens in the short term,” he said.
The critical variable in this equation is interest rates, the rise of which “puts significant pressure on household incomes.” And yet, according to Mounties , there was also a positive moment. “Given that the decisions of the European Central Bank are temporary and will begin to change in 2024, possibly from June, it is likely that interest rate de-escalation will begin domestically as well.” This potential development is critical to promoting the financial health of households and businesses, as well as the banks themselves. “A prolonged period of high interest rates could lead to, among other things, the creation of new non-performing loans,” he said.
On the positive side, “unemployment is at very low levels and we are gradually approaching full employment conditions.” This created another problem: “many industries are faced with a shortage of personnel, both specialized and non-specialized.”
The government’s recruitment and foreign labor strategies could, according to Mounties , “lead to an overall increase in the country’s population in the coming years, with economic development and consumption implications as well.” .
Despite significant geopolitical instability, “Cyprus’ property sector has shown particular resilience in 2023, despite expectations that 2024 will be a year of significant challenges.”
Rising residential property prices have forced many to turn to rentals, leading to significant increases in rents, especially for apartments. “According to the latest data from the Central Bank of Cyprus, apartment prices in 2023 exceeded 2010 prices for the first time,” Mounties said , adding that this trend has led to an increase in properties being purchased as rentals as part of an investment decision.
“Indeed, based on our experience in providing property management services, many Cypriots and foreigners are now investing in property to earn a satisfactory income, either through long-term rentals or short-term rentals,” he said.
Mounties stresses the importance of having the right policies in place to maintain the dynamics of the real estate sector. “Action is needed to support economic activity to meet increased demand, which has outpaced supply in recent years, further action to create affordable housing projects, and specific policies to address staffing shortages that are delaying important construction projects.”
The sustainability of the real estate sector and its contribution to the development of the Cypriot economy will largely depend on international developments. “This does not mean that timely decisions should not be made to protect the sector and interested buyers,” Mounties said .
