The Cypriot economy maintained its positive momentum in the first quarter of 2023, with real GDP demonstrating an annual growth rate of 3.4%. However, there are slowdown signs due to the uncertain external environment and the restrictive monetary policy, implemented by the European Central Bank in an effort to control inflation.

According to a flash estimate from the Statistical Service of Cyprus, during the first quarter of 2023 the real GDP growth rate was positive, compared to the corresponding period last year, and estimated at 3.4%. On a seasonally adjusted basis, GDP growth is also estimated at 3.4%.

The positive GDP growth rate can mainly be attributed to the following sectors: hotels and restaurants, transport and storage, information and communication, wholesale and retail trade, repair of motor vehicles, arts, entertainment and recreation, and financial activities, as CYSTAT reports.

Compared to the previous quarter, the Cypriot GDP expanded by 0.8%, seasonally adjusted. Additionally, according to Eurostat, Cyprus had the second-highest growth rate in Q1 2023, following Spain (3.8%).

Amid the ongoing military invasion in Ukraine, high inflation, and consecutive interest rate hikes by the ECB, the Finance Ministry estimates that GDP growth will decelerate to 2.8% this year from 5.6% in 2022.

However, the European Commission's spring forecast, issued on Monday, predicts that Cyprus’ GDP is forecast to grow by 2.3% this year. The forecast places Cyprus inside the top 5 and top 10 of the Eurozone and the EU, respectively, in terms of GDP growth in 2023 and 2024, Cyprus’ Finance Ministry stated on Tuesday.

In a press release issued over Monday’s EU forecasts, the Ministry said that the Cypriot GDP growth is estimated at 1.2% and 1% higher than the Eurozone and EU average in 2023 and 2024, “which shows the resilience, flexibility and ability of our economy to adapt to adverse financial conditions.”

Regarding public finances, the Ministry highlighted that the Commission’s forecast notes that fiscal performance has been stronger than expected, underpinned by significant increases in revenue due to continued growth along with the phase out of Covid-19 financial support measures.

The Commission projects a budget surplus of 1.8% of GDP in 2023 while in 2024 the surplus is forecast to reach approximately 2.1%, the Ministry added.

Concerning the public debt, the Ministry explained that the ratio of debt to GDP is expected to decline in the next few years, driven by the rise in nominal GDP and primary surpluses. The radio is expected to drop to 80.4% by the end of 2023 and further decrease to 72.5% in 2024.

Moreover, in its recently published press release, the Finance Ministry acknowledged that the data confirm the economy’s transition into a period of heightened uncertainty, accompanied by a relatively high growth rate. Besides high inflation, which is gradually declining, significant challenges lie ahead for the country. The Ministry specified that even under these circumstances, the Cypriot economy’s slowdown in 2023 will be less severe compared to other EU countries.

In conclusion, the Ministry underlined the importance of following a reasonable fiscal policy and adopting effective financial management. Furthermore, the implementation of the National Recovery and Resilience Plan is expected to contribute to the resilience of the country’s economy, thus addressing the domestic and external challenges.

It is worth noting that former DISY president and ex-presidential candidate, Averof Neofytou, addressed the matter yesterday on Twitter: “The growth rate in the first quarter shows a significant slowdown of the economy by almost 50%, compared to 2022. Serious approach and careful actions are required, and above all, a well-timed planning in order to effectively deal with the exogenous and endogenous challenges.”