According to the Economic Research Centre of the University of Cyprus, the country's Gross Domestic Product (GDP) growth and inflation are expected to follow specific trends in 2023, as outlined in their July issue. The projections indicate that the economy will grow at a rate of 3% in the specified year. Importantly, this forecast remains consistent with the earlier projection made in the May issue, suggesting a stable outlook for economic growth.

The projected GDP growth in 2023 indicates a deceleration from the previous year, where the economy experienced a growth rate of 5.6%. This slowdown is in line with the cautious expectations of the ERC. Furthermore, the forecast for 2024 reveals a slight decrease to 2.9%, marking a 0.2 percentage point decline compared to the May issue. Despite this moderation, the ERC stresses that the growth projections may still be susceptible to risks and uncertainties.

Various factors are expected to influence the growth outlook for Cyprus. The impacts of monetary tightening, high inflation rates observed in previous quarters, and the recent slowdown in the euro area are considered significant factors that may potentially weigh on economic growth. However, the ERC also points out some positive developments that may support growth. For instance, resilient activity and a stable labor market in Cyprus, along with strong fiscal performance and a decrease in uncertainty, are likely to provide some momentum to the economy. Additionally, favorable trends in international markets, such as declining commodity prices and improvements in stock market indices, are also expected to contribute positively to growth, particularly in 2023.

Despite these potential growth drivers, the ERC maintains a cautious stance, emphasizing that risks to the growth outlook persist and remain skewed to the downside, as highlighted in their May issue.

As for inflation, the forecast suggests a notable decrease from 8.4% in 2022 to 3% in 2023. Looking ahead to 2024, inflation is projected to be at 2%, reflecting a continued downward trend. The decline in inflation is attributed to various factors, including recent drops in international commodity prices, a deceleration of domestic inflation, and tighter financial conditions.

It's noteworthy that the inflation forecast for 2023 has remained unchanged compared to the May issue. However, the projection for 2024 has been revised downwards by 0.4 percentage points, primarily due to significant moderation in domestic inflation and declines in international commodity prices during the second quarter of the year. Nevertheless, the ERC highlights that potential risks to the inflation outlook are still tilted to the upside, warranting continued monitoring and vigilance.

In conclusion, the Economic Research Centre of the University of Cyprus projects a GDP growth rate of 3% for 2023, with a steady outlook compared to the earlier forecast in May. Although the economy is expected to face challenges due to monetary tightening and external factors, positive developments and improved market conditions may provide support. Similarly, inflation is anticipated to decrease, driven by factors such as declining commodity prices and tighter financial conditions. However, uncertainties persist, indicating the need for careful observation of potential risks to both the GDP growth and inflation outlooks.