Central Bank of Cyprus revises growth rate for 2024 to 3%

The Central Bank of Cyprus (CBC) made a conservative upward revision to the GDP growth rate for 2024, by 0.2 percentage points, to 3%, compared to the March 2024 forecast, in its June 2024 Economic Bulletin, stressing that based on the data available so far, any impact from the Middle East conflict "is limited", while the risks of GDP projections deviating from the baseline scenario for 2024 "overall tend to be balanced."

At the same time, the CBC made a small downward revision to the unemployment rate in 2024, by 0.1% to 5.7%, compared with the March forecast, and a small upward revision to the HICP, by 0.1 percentage point to 2.1%. It also made a downward marginal revision, by 0.1% to structural inflation, to 2.5%.

According to the CBC, the revision of GDP growth for 2024 is mainly due "to the upward revision of domestic demand and, to a lesser extent, to the upward revision of external demand, for example due to the dynamics of export sectors such as technology."

Moreover, CBC notes that in 2025 and 2026, GDP is expected to grow by 3.1% and 3.2%, respectively, which is "mainly due to the expected further rise in domestic demand and the recovery in external demand."

It is added that based on the available data, "there is no significant negative impact on investment from the conflict in the Middle East through a drop in demand, nor from the impact of restrictive monetary policy."

The risks of deviation of GDP projections from the baseline scenario overall tend to be balanced for 2024, given the conservative projection of the relative growth rate for 2024, and slightly downward for 2025-26, CBC underlines.

Downside risks "are mainly related to the negative impact of ongoing geopolitical tensions and the fragile external demand path", which are also linked "to higher energy price formation and decisions by oil-producing economies in relation to supply constraints.

"Downside risks also include tighter-than-anticipated financing conditions, due to a larger-than-expected impact from previous interest rate hikes, which may have a dampening effect on domestic demand, and higher-than-expected wages", it adds. Finally, the CBC said downside risks relate to lower-than-expected impact from absorption of available funds for investment from the RRF.

(Source: CNA)