Cyprus economy: predicts 2% inflation drop this year

The Central Bank of Cyprus (CBC) announced on Friday that the Cypriot economy is set to grow by 2.8% in 2024, marking a 0.2% increase from its previous projection in December. The boost is attributed to more positive forecasts for domestic demand, which have managed to offset less favorable expectations for tourism and exports of professional services, given the uncertain external climate.

The CBC has maintained its projections for 2025 and 2026 at 3.1% and 3.2% growth respectively. Additionally, it anticipates that harmonized inflation will continue its downward trend in 2024, dropping to 2%, while the labor market remains resilient to external shocks.

The upward revision of GDP growth for the current year is credited to improved prospects for domestic demand, counterbalancing the less optimistic outlook for tourism and professional services exports due to external uncertainties.

Looking ahead, the Cyprus GDP is expected to be primarily fueled by both domestic and foreign demand.

"The recovery of households' real disposable income, driven by decreased inflation, rising wages, and the robustness of the labor market, will bolster domestic demand," noted the CBC. It emphasized that private investment has not been significantly affected by conflicts in the Middle East.

Furthermore, the CBC highlighted the ongoing strength of the labor market, projecting a decrease in unemployment to 5.8% for 2024, an improvement of 0.2% compared to previous estimates. The unemployment rate is forecasted to drop further to 5.6% in 2025 and 5.3% in 2026, nearing conditions of full employment.

According to CBC forecasts, the Harmonized Index of Consumer Prices (HICP) is expected to decrease to 2% in 2024 and 2025, reaching 1.9% the following year, surpassing its December projection of 2.4% inflation for the current year.

"The continued decline in the HICP is attributed to easing inflationary pressures from external factors in previous years, as well as the impact of the restrictive monetary policy," added the CBC.