Cyprus's inflation is expected to continue to decline, according to the European Commission's forecast

In its spring forecast, the European Commission presents a positive image of Cyprus, predicting steady economic growth and ongoing inflation reduction for 2024 and 2025. Cyprus is expected to see excellent economic growth, driven by gains in exports and strong domestic demand, according to the most recent forecasts for the economy published in the Spring 2024 Economic Forecast.

The economy is predicted to increase by 2.8% in 2024 and 2.9% in 2025, while inflation is expected to stay lower and will eventually approach the 2% target. A robust labor market and declining energy and food prices have been associated with this drop in inflation.

Furthermore, as the prediction indicates, it is expected that the public debt would decline quickly and the government budget will continue to be in surplus. While inflation is predicted to decline from 3.9% in 2023 to 2.4% in 2024 and then to 2.1% in 2025, employment is expected to continue on an upward trend, growing by 1.4% yearly.

At the EU level, the Spring Forecast foresees a gradual expansion of economic activity following a period of stagnation in 2023. GDP growth for the EU is predicted at 1.0% in 2024 and 1.6% in 2025, with inflation expected to decrease from 6.4% in 2023 to 2.7% in 2024 and 2.2% in 2025.

Looking at Cyprus's estimate, it appears that domestic demand and an increase in investment from large construction projects are going to push the economy of Cyprus into higher growth rates. Along with strong results in tourism and non-tourism services, public investment, supported by EU funding, is anticipated to make a major contribution to growth.

Notwithstanding, several obstacles persist, such as a substantial current account deficit and reliance on energy imports. With increased employment, the unemployment rate is predicted to drop to 5.4% by 2025. It is anticipated that inflation will continue declining, mostly due to reductions in the cost of food and energy.

It is expected that the budgetary surplus will keep growing as an outcome of increasing revenue and the phasing out of energy-related measures. Over the course of the forecasts horizon, this surplus along with strong nominal GDP growth could lead to a considerable reduction in the general government debt-to-GDP ratio, indicating promising economic growth for Cyprus.