The economic outlook for Cyprus in 2024 is promising, with the Central Bank of Cyprus (CBC) revising its GDP growth forecast to 2.8%. This optimistic projection is primarily driven by anticipated increases in domestic demand, even as the island nation navigates challenges in the tourism sector and exports due to ongoing geopolitical tensions. Additionally, inflation is expected to stabilize around 2%, signaling a period of economic steadiness after facing external inflationary pressures.

• Domestic Demand :The CBC attributes the upward revision in GDP growth to robust domestic demand. The recovery of household real disposable income, bolstered by wage increases and a resilient labor market, is expected to sustain consumption levels. This domestic spending is a key driver of economic activity, providing a stable foundation for growth.

• Investment in Infrastructure and Technology: Significant contributions to GDP growth are also expected from large-scale private investments and projects under the Recovery and Resilience Plan. These projects focus on digital and green development, aligning with broader EU goals for sustainable and technological advancement. The influx of foreign direct investment (FDI) and the growth of the information and communication technology (ICT) sector further underpin this positive economic trajectory​ (IMF)​.

Inflation in Cyprus is projected to decrease to around 2% in 2024, reflecting a stabilization of prices. This decline is attributed to several factors:

• Weakening of External Inflationary Pressures: The harmonized index of consumer prices (HICP) indicates that the influence of external supply factors on inflation is diminishing.

• Monetary Policy: The unified monetary policy of the eurozone continues to exert a dampening effect on inflation, contributing to price stability.

• Energy Prices: Downward revisions in energy prices are expected to play a significant role in reducing overall inflation (IMF)​.

Despite the positive outlook, Cyprus faces several challenges that could impact its economic performance:

• Tourism Sector: The tourism sector, a significant contributor to Cyprus's economy, faces uncertainties due to geopolitical tensions, particularly the Russo-Ukrainian war. The anticipated loss of tourists from affected regions could dampen overall economic growth.

• External Demand: Net exports are expected to negatively contribute to the economic growth rate in 2024. The fragile global economic environment and potential delays in private investments from foreign interests, especially due to regional conflicts, pose risks to the export sector.

• Fiscal Management: The Cyprus Fiscal Council has highlighted the need for cautious fiscal management. It warns against excessive spending on inelastic budget items, such as public sector hirings, which could constrain fiscal flexibility. Prudent fiscal policies are essential to maintaining economic stability and supporting long-term growth​. 

Looking ahead, the Cypriot economy is set to benefit from several strategic initiatives:

• Diversification of Tourism and Professional Services: Efforts to diversify markets for tourism and professional services are expected to mitigate the impact of geopolitical tensions and support economic growth.

• Green and Digital Transition: Continued investment in digital and green infrastructure projects will drive innovation and sustainable development, aligning with EU directives and enhancing economic resilience.

Cyprus’s economic outlook for 2024 is characterized by a balance of optimism and caution. While domestic demand and strategic investments drive growth, the island must navigate external challenges and ensure prudent fiscal management. The stabilization of inflation further supports a positive economic environment, setting the stage for continued growth and resilience in the coming years.

As Cyprus continues to adapt and innovate, its ability to manage risks and leverage opportunities will be crucial in sustaining its economic momentum. The efforts to enhance infrastructure, diversify economic activities, and maintain fiscal discipline are key to achieving long-term prosperity.