The economic growth dynamics in Cyprus are anticipated to strengthen during the period 2024 – 2025, according to the Center for Economic Research at the University of Cyprus.

This is expected to occur "due to resilient demand and tightness in the labor market, the easing of inflationary pressures, and the gradual reduction of interest rates as a result of the normalization of monetary policy," the Center notes in its July 2024 issue.

It adds that the growth rate of the real GDP is forecasted at 3.0% for 2024 and 3.3% for 2025.

Compared to the April issue, the forecast for 2024 has been revised upward by 0.4 percentage points, as the growth rate of real GDP in the first quarter of 2024 was higher than expected and labor market conditions improved further in the second quarter of the year. The forecast for 2025 has remained unchanged from the April issue.

Inflation (based on the Consumer Price Index) is expected to continue decreasing in 2024 and 2025 due to deflation in previous quarters supported by the easing of upward pressures on international commodity prices and tight financial conditions. Inflation is projected at 2.1% for 2024 and 2.0% for 2025, which is 0.1 percentage points higher for each year compared to the April forecast.

The upward revision of the forecasts was attributed to the rise in domestic inflation in the second quarter of 2024 (mainly due to increases in energy prices), persistently high inflation rates in services, and resilient economic activity.

The key factors that might lead to deviations in GDP growth and inflation from these forecasts are related to the deflation process, the pace of monetary policy normalization, the external economic environment, geopolitical tensions, major investment projects, and climate risks, it concludes.