The Central Bank of Cyprus (CBC) has revised its GDP growth forecast for 2024, increasing it by 0.5 percentage points to 3.5%, compared to its previous projection in June. The CBC notes that there is no significant negative impact on investments from the ongoing conflict in the Middle East.

According to the CBC, the likelihood of deviations from its baseline GDP forecast "tends to be balanced for 2024" and "slightly downward" for the years 2025-2026.

In its September 2024 forecasts for the main macroeconomic indicators of Cyprus for 2024-2026, the CBC significantly revised the unemployment rate downwards by 0.6 percentage points for each year, with unemployment expected to fall to 5.1% in 2024.

The CBC also made slight adjustments to its inflation forecast for 2024, raising it by 0.1 percentage points to 2.2%. Structural inflation, which excludes energy and food, was revised downward by 0.1 percentage points for 2025 and 2026, to 2.0% and 1.9%, respectively.

Regarding inflation, the CBC assesses that risks for deviations from the base scenario are balanced for 2024, but slightly upward for 2025 and 2026.

The September 2024 projections indicate that the GDP growth rate for 2024 is expected to reach 3.5%, up from 2.5% in 2023. For 2025 and 2026, GDP is projected to grow by 3.1% and 3.2%, respectively.

Based on current data, the CBC reports no significant negative impact on investment from the Middle East conflict, nor from the ongoing tight monetary policy. The construction sector has been a key driver of economic growth in the first half of 2024.

Continued support for GDP is also expected from the expansion of companies with foreign interests in the technology and shipping sectors, both of which have seen significant growth in recent years.

The CBC attributes the upward revision of the 2024 GDP growth rate primarily to improved tourism prospects and stronger exports in financial and professional services. Domestic demand, driven by better-than-expected private consumption, also contributed to the upward revision.

Despite significantly improved economic performance in the first half of 2024, the CBC's GDP revision remains conservative, reflecting the high uncertainty posed by the fragile external environment.