Economic growth in Cyprus this year is estimated to decelerate to 2.3% of gross domestic product, from the previous estimate of 3.6%, while inflation is forecasted at more than double of initial projections, due to the negative geopolitical developments associated with the war in Ukraine, Bank of Cyprus Governor Constantinos Herodotou has said.
In his opening statement in the central bank’s annual report, released last Friday, Herodotou said the bank’s December 2021 forecasts on the economy were out of date now due to the Russian invasion of Ukraine and that the general outlook was highly uncertain.
“The economic consequences are expected to arise via further rises in commodity prices and losses in tourism and other services exports,” he stated. “Indirect impacts are foreseen due to the deterioration in international economic activity owing to confidence effects on business and consumer sentiment.”
Inflation, he said, is projected to grow considerably this year due to increases in energy prices as well as the broadening of inflationary pressures on food, and the categories of services and non-energy industrial goods.
Nevertheless, a normalization of inflationary pressure is expected over 2023-24 with a relatively small impact expected on unemployment in 2022, with a continuation of this downward course.
The central banker said that the Cypriot economic growth rate for 2022 has been revised to 2.3% compared to the initial estimate of 3.6% last December, while inflation for the whole year appears more than double the initial estimate due to the negative geopolitical developments.
“In relation to the growth of the economy in 2022 and taking into account the new negative geopolitical developments, GDP growth of around 2.3% is expected compared to an increase of 3.6% estimated in December 2021,” Herodotou said.
He went on to note that inflation in 2022, taking into account new negative geopolitical developments, is expected to rise to around 6.8%, against 2.5% estimated in December.
At the same time, Herodotou remarked that the banking sector now faces risks arising from climate change and the goal/agreement of countries to reduce carbon emissions, on top of challenges related to non-performing loans, the rationalization of banking business models and digitalization.