Economic growth in Cyprus projected to strengthen through 2024-2025

The University of Cyprus’ Economics Research Centre (CypERC) this week released a report predicting improved economic growth for Cyprus during the 2024-2025 period.

According to the centre’s July 2024 issue, this optimistic outlook is attributed to resilient demand, a tight labour market, easing inflationary pressures, and the gradual reduction of interest rates resulting from the normalisation of monetary policy.

Moreover, CypERC forecasts that the real GDP growth rate will reach 3.0 per cent in 2024 and increase to 3.3 per cent in 2025.

These projections represent an upward revision of 0.4 percentage points for 2024 compared to the April issue, spurred by higher-than-expected GDP growth in the first quarter of 2024 and further improvements in labour market conditions during the second quarter.

It should be noted that the forecast for 2025 remains unchanged from the April report.

Inflation, measured by the Consumer Price Index (CPI), is expected to continue its downward trend in 2024 and 2025, reflecting deflation in previous quarters supported by the easing of upward pressures on international commodity prices and strict financial conditions.

The report projected inflation rates of 2.1 per cent in 2024 and 2.0 per cent in 2025, each revised upward by 0.1 percentage points compared to the April issue.

The upward revision of inflation forecasts, the centre explained, was influenced by rising 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.

Furthermore, the report highlighted several factors that could lead to deviations in GDP growth and inflation rates from these projections.

These include how quickly inflation falls, the pace of monetary policy normalisation, the external economic environment, geopolitical tensions, significant investment projects, and climate risks.