The Commission issued in-depth reviews (IDRs) assessing macroeconomic imbalances for six member states
Cyprus' economy is on a healthy footing while growth and inflation are expected to decline, but links with economies inside and outside the EU make geopolitical and trade tensions a non-negligible risk, according to an overview on macroeconomic imbalances published by the European Commission on Monday as part of the European Semester.
The Commission has issued in-depth reviews (IDRs) assessing macroeconomic imbalances for six member states: Cyprus, the Netherlands, Romania, Slovakia, Spain and Sweden, while reports are expected for another six member states. The report for Cyprus is posted on the page https://economy-finance.ec.europa.eu/publications/depth-review-2024-cyprus_en.
The overview as mentioned in the introduction of the Cyprus report, analyzes the evolution of Cyprus' vulnerabilities related to high private, public and external debt, as well as possibly new emerging risks.
This year's report assesses the persistence or elimination of vulnerabilities identified in previous years, potential emerging risks, as well as relative progress in implementing policies, as well as options for policies that could be considered in the future.< /p>
The countries were selected within the framework of the vigilance mechanism, based on which it is determined through specific economic indicators for which Member States there is a need to identify and analyze potential risks.
In particular, the 2024 Alert Mechanism Report (AMR) adopted in November 2023 as part of the Autumn Package identified 12 Member States for which IDRs were deemed necessary. The other six countries for which reports will be published in the coming weeks are France, Germany, Greece, Hungary, Italy and Portugal.
This year's reports are published before the spring package, so that they can be discussed in depth before the Commission submits its country-by-country recommendations as part of the coordination and monitoring process of economic and social policies in EU economies (known as the 'European Semester').
< h3 class="text-paragraph bd_Title">The Cypriot economy is on a sound footing
As mentioned in the introduction of the report on Cyprus, stable economic growth, combined with the reduction of inflation, contribute to the Cypriot economy on a sound basis.
GDP growth moderated to 2.4% in 2023 from 5.1% in 2022, with the slowdown mainly due to weaker external demand for financial and business services, which was affected by Russia's incursion against Ukrainian.
According to the Commission's recent interim winter forecasts, in 2024 and 2025 economic growth is expected to pick up again and reach around 3%. This acceleration in growth is expected to be helped by significant planned investments in the energy, education, healthcare and tourism sectors, supported in part by the Recovery and Resilience Facility.
Headline inflation started to moderate in 2023, falling to 3.9%, while core inflation is slightly higher at 4.4%, from 8.1% and 5.3% respectively in 2022. In 2024 and in 2025, inflation is expected to continue to decline.
The Cypriot labor market remains robust, with employment continuing to grow and unemployment expected to fall below 6% by 2025, the lowest level in a decade.
At the same time, real wages are projected to register modest growth in 2024-2025, as they did in 2023, after falling significantly in 2022.
According to the Commission's report on Cyprus, the fiscal position remains strong with a significant surplus in 2023, which is expected to be maintained in 2024 and 2025. Risks to the economic outlook are broadly balanced.
< p class="text-paragraph">The high degree of integration with the economies of the EU and third countries makes Cyprus susceptible to secondary effects resulting from economic developments in them.
The Cypriot economy is highly dependent on Greek and Italian products and services, while Greece and the United Kingdom are important export partners.
In terms of external demand, the larger shares of the total added value of the Cypriot economy are produced to satisfy domestic demand in Germany, the USA and China, while Cypriot domestic demand is mainly satisfied by the added value produced in the United Kingdom, Greece and Germany.
Because Cyprus has high exposure, both direct and indirect, to non-EU partners, geopolitical and trade tensions pose a non-negligible risk to its economy.
