The Economic Research Centre (ERC) of the University of Cyprus has revised its GDP growth predictions for 2023 and 2024 downward, simultaneously revising its inflation forecast upward, as detailed in its October Economic Outlook bulletin.

This bulletin projects that real GDP growth in Cyprus will decelerate, dropping from 5.1% in 2022 to 2.4% in 2023, and then marginally recovering to 2.8% in 2024. Notably, the second quarter of 2023 witnessed a further slowing of GDP growth, culminating in a lower-than-anticipated growth rate. This observation has led to a reduction in growth forecasts for 2023 and 2024 by 0.6 and 0.1 percentage points, respectively, from the projections made in the July issue.

A combination of tightened credit conditions, heightened prices, and a slowdown in the economies of Cyprus' major trading partners has posed significant challenges to domestic growth. Indicators from the third quarter suggest a continued weakening in domestic economic activity, largely influenced by diminishing external demand.

Despite these challenges, the report identifies several positive factors that buoy the growth outlook. These include favorable labor market conditions, robust business confidence, an increase in new business loans, improvements in stock market indices, and strong fiscal performance.

The bulletin also brings to light notable shifts in the inflationary landscape. The Consumer Price Index (CPI) is anticipated to fall from 8.4% in 2022 to 3.9% in 2023, with a further reduction to 2.6% expected in 2024. This decline in inflation is largely attributed to the impacts of tighter credit conditions, recent drops in international commodity prices, and the prevailing domestic inflation trends. While there was only a marginal reduction in Cyprus' CPI inflation from the second to the third quarter, September witnessed more significant price hikes, prompting an upward revision of the inflation forecasts. Consequently, the inflation expectations for 2023 have been raised by 0.9 percentage points and for 2024, by 0.6 percentage points.

Adding to the complexity of the economic outlook, the October bulletin acknowledges an increase in geopolitical uncertainty, which surpasses earlier projections. The report underscores that this escalating uncertainty could significantly affect economic activities and pricing structures in Cyprus in the forthcoming quarters. The precise impact of these geopolitical shifts is currently unclear, presenting a mix of potential risks and opportunities for the country’s economic future.