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Wednesday, May 22, 2024

The CBC estimate for the growth rate in 2023 is unchanged at 2.6%

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In the June macroeconomic forecasts, the CBC revised marginally downward (-0.2%) the growth rate for 2024 to 2.8%

Αμεταβλητη στο 2.6% η εκτλμηση ΚΤΚ για το ρυθμo ανα&pi ;τυξης το 2023

Unchanged at 2.6%, the Central Bank of Cyprus (CBC) kept its forecast for this year's growth rate of the Cypriot economy, noting that the more positive than expected developments during the first months of this year compared to with private consumption and investment offsetting the impact of Russian-Ukrainian sanctions.

At the same time, in the June macroeconomic forecasts, the CBC revised marginally downwards (-0.2%) the growth rate for 2024 to 2.8%, due to the expected negative impact of the new Russian-Ukrainian sanctions on the turnover of professional services, while maintaining the forecast for GDP growth in 2025 at 3.1%.

“Private consumption, although predicted to slow down, is expected to remain an important driver of economic growth in the coming years”, emphasizes CBC.

According to the CBC, the expected path of GDP is based mainly on the path of domestic demand for the years 2023-25 ​​and, to a lesser extent, on net exports for 2023, in the context of the expansion of the turnover of foreign companies already established in the Cyprus in particular in previous years and active in the technology sector, as well as the continued rise in tourism receipts with a recovery to pre-pandemic levels in the first three months of this year.

As mentioned, a significant contribution is expected mainly from large private investments which are in progress, as well as from projects to support digital and green development and other reform projects in the context of the implementation of the Recovery and Resilience Plan, while a small contribution is also expected from residential investments due to of the government's interest rate subsidy plan for new mortgages taken out through the end of 2021.

Inflation projections essentially unchanged

According to the CBC, inflation (based on the Harmonized Index of Consumer Prices, HICP) is forecast to slow significantly in 2023 to 3.3% from 8.1% in 2022, as a result of the further correction expected in energy prices, full normalization of supply chain disruptions and the expected impact of single monetary policy in the euro area on domestic demand.

It is also noted, the contribution of the projected reduced profit margins on the part of companies to the slowdown of inflation in 2023, while a further easing of inflationary pressures is expected in the years 2024 and 2025, to 2.3% and 2%, respectively, as a result of the normalization of energy prices and the consequent slowdown in food prices as well as due to the impact of monetary policy.

Core inflation, i.e. inflation excluding energy and food, is expected to decline to 3.7% in 2023, down from 5% in 2022, while in 2024 and 2025, it is forecast to decline further to 2.6%, and 2.3%, respectively, mainly due to the full normalization of disruptions in supply chains during 2023, and in relation to the expected reduction in loan demand due to the increase in interest rates.

The small upward revision of 0.1 percentage points in 2023-24 relative to the March 2023 forecasts is due, in part, to the incorporation of larger second round effects from wage increases which are expected to drive prices of manufactured goods excluding energy and services at higher levels compared to the aforementioned previous forecasts.

A marginal decline is expected in unemployment this year, with the rate easing marginally to 6.7% of the labor force in 2023 compared to 6.8% in 2022.

As the CBC explains, this is due to the continued tightness observed in the labor market despite the ongoing impact from the war in Ukraine as shown by the European Commission's monthly surveys of employment expectations over the next three months.

The years 2024-2025 are projected to continue to decline, in line with expected GDP growth, and with unemployment reaching 6.1% in 2024 and 5.6% in 2025, approaching full employment conditions.< /p>

CBC that the small upward revision in 2023-25 ​​compared to the March 2023 forecasts (0.1% and 0.2% respectively), reflects the slightly more moderate rate of economic growth due to the impact of sanctions on the sector of professional services, mainly in 2024.

Downward deviation risks

In relation to the possibilities for deviation from the base scenario of the forecasts, the CBC notes that these tend to be, overall, slightly downward for GDP and balanced for inflation in the years 2023-25.

The main downside risks to GDP relate to a possible worse-than-expected outlook for the external environment and lower-than-expected performance of non-tourism services exports due to Russian-Ukrainian sanctions.

Upside (improved) risks include possible higher than expected implementation of private sector investment plans, as well as possible better performance in the tourism sector.

Relative to inflation, upside risks mainly come from possible higher-than-expected energy prices, as well as possible more persistent relative time lag effects. For the years 2024 and 2025 in particular, upside risks are associated with a possible wage-price spiral, associated with possible higher long-term inflation expectations.

He notes, however, that the above risks for inflation offset by tighter-than-expected financing conditions, through the expected negative impact on domestic demand, as well as possible weaker performance in exports of non-tourism services due to Russian-Ukrainian sanctions.

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Source: www.kathimerini.com.cy

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