The Center for Economic Research (KOE) of the University of Cyprus has made a significant review of the growth rate of the economy, especially for 2021, due to the strengthening of the economic recovery and the improvements in the labor market.
In particular, according to the October Economic Outlook bulletin, real GDP growth is estimated at 5.4% in 2021 and 4.1% in 2022. It is noted that in the corresponding bulletin of last July, the JIT forecasted a growth rate of 3.7 % and 3.8% for 2021 and 2022 respectively.
On the basis of the upward revision of GDP growth, the JIT also revised its inflation forecasts, which for 2021 and 2022 are projected to reach 2.3% and 1.8% in 2021 and 2022 respectively, in compared to 1.6% and 1.8% in July.
“The forecasts have been revised upwards mainly due to the strengthening of the recovery in the second quarter of 2021, further improvements in activity and the labor market in the third quarter (reflected in leading indicators) and upward revisions in the National Accounts data. “, Reports the JV.
The risks in the prospects
The JCC notes, however, that risks for a worse-than-expected outlook stem from possible new pandemic waves due to new variants of the virus and relatively lower vaccination coverage for younger age groups.
The risk of a negative impact on the forecasts also arises from possible disruptions in the supply chain due to the pandemic and the continuing upward pressures on international commodity prices, since Cyprus' dependence on imports, mainly oil, is very high, as stated in the bulletin.
According to the JCC, risks may arise for the prospects as a result of the high public and private debt that may make the Cypriot economy vulnerable to the possibility of less loose financial conditions and changes in investor confidence.
The relatively high level of non-performing loans remains a burden on the outlook, but also fiscal pressures that may arise, for example, from a prolonged pandemic, increased spending related to the General Health System and the State Health Service, as well as inflationary pressures. .
The conditions for even higher growth
Moreover, better-than-expected prospects can be shaped by investment and reform, in particular through the Cyprus Recovery and Sustainability Plan, which is expected to have a positive impact on output and employment. Stabilizing the epidemiological situation and increasing vaccination coverage worldwide would further improve external and domestic economic conditions.
In Cyprus in particular, the increase in vaccination coverage for younger age groups and a better-than-expected tourist season could lead to stronger prospects than expected, the JCC concludes.
