Central Bank revises economic growth forecast to 4.1%

The Central Bank of Cyprus (CBC) has positively revised its estimate of the island’s GDP growth this year to 4.1% from the previously predicted 3.4%, the supervisory body said in its latest economic bulletin.

Economic growth is also expected to stay at a similar level next year at 3.9%, and slowdown slightly to a lesser 3.5% in 2020, the bank said.

GDP growth in 2017 was 3.9% which made Cyprus one of the fastest growing economies in Europe.

CBC said the main factors behind the upward revision of the forecast is a robust and booming tourism sector and the better flow of investment.

The bank said that private consumption was also a key driver for economic growth over the foreseeable future.

“In 2018, private consumption is expected to increase 2.5% after growing by 4.2% in 2017, reflecting the increase in disposable income resulting mainly from an increase in employment and to a lesser degree higher earnings,” the bank said.

Another factor behind more disposal income and confidence in the Cyprus economy was more people finding a job and, to a lesser extent, better wages.

But an increase in wages is expected to have a positive effect on Cypriot household’s savings, which during the recession were used to maintain a level of consumption, and went towards repayment of non-performing loans, the bank said.

Although still relatively high, the CBC expects unemployment to continue to decline from its zenith of 17.6% in 2015 and stay below double digits.

The unemployment rate is expected to flatten out this year at 9.1% from 11% last year and projected to drop to 7.4% in 2019 and keep on a downward in 2020 to 6.5%.