Economy to grow at moderate pace

The Cypriot economy will recover in 2021, albeit at a more moderate pace than the previous projections due to lockdown measures in January and April, the Cyprus Central Bank forecasts.

The projections include upside deviations due to higher absorption of EU Recovery and Resilience Facility funds and possibly faster recovery of the tourism industry following the Covid disruption.

In its June macroeconomic forecasts, the CBC said following a downturn of 5.1% GDP in 2020; the economy is expected to grow by 3.8% GDP compared with its previous projection of 4.1%.

Next year and in 2023, economic growth will amount to 3.1% and 2.3% GDP, respectively.

In its December 2000 projections, the CBC forecasted a downturn of 6.2% in 2020, followed by growth of 4.1%, 3.4% and 2.7% in 2021, 2022 and 2023.

“A slightly more moderate recovery is expected for 2021 compared with the December 2020 projections as a result of the two strict lockdown measures in January and April of this year,” the CBC said.

The impact of the two national lockdowns was less than the first one in 2020, as consumers, employees, and business adapted better. Due to the less severe impact, the Cypriot economy in the first quarter recorded a smaller recession than previously expected.

The Central Bank said its projections are marked by significant uncertainty, albeit more limited, associated with possible Covid variants and the scope of possible permanent losses to GDP.

Moreover, the CBC said upside deviations accompany the baseline projections due to the possibility of increased absorption of EU funds, higher than anticipated utilisation of cash reserves and the key tourism sector improving.

Inflation is expected to return to positive territory in 2021, reaching 1.1% from -1.1% last year, pushed upward by increases in oil prices and services. In 2022 inflation will decelerate to 0.7% and reach 1% in 2023.