Cyprus Economic Forecast

A flash estimate revealed that year on year economic growth accelerated to 2.5% in Q3 from 2.2% in Q2. The release stated that growth was driven by the hospitality, transportation, retail and information sectors. Lower inflation in the period should have supported domestic activity. Meanwhile, the contribution of the external sector is not clear-cut when looking at monthly data. On the one hand, merchandise exports accelerated markedly in the period. On the other hand, growth in tourist arrivals slowed. Early data for Q4 points to a slight growth deceleration. Economic sentiment ticked down in October on weaker confidence in the retail and services sectors. In other news, Scope Ratings upgraded the country’s rating to ‘BBB+’ from ‘BBB’ in mid-November, citing improving fiscal metrics and robust economic fundamentals.

Harmonized inflation fell to 3.6% in October from September’s 4.3%. The decline was driven by softer price pressures for food and housing and utilities. In 2024, our panelists see inflation below this year’s average level, thanks to the lagged effect of monetary tightening and a higher base effect. Commodity price spikes pose an upside risk.