Cyprus: GDP growth accelerates in Q3
Economic growth edged up in the third quarter, with GDP expanding 2.5% on an annual basis, according to a preliminary reading (Q2: +2.2% year on year). On a working-day and seasonally adjusted quarter-on-quarter basis, economic activity rebounded, expanding 1.1% in Q3, contrasting the previous quarter’s 0.4% decrease. Q3’s reading marked the best result in one year.
The flash estimate did not include a detailed breakdown. Instead, it stated that growth was underpinned by the hospitality, transportation, retail and information sectors. Lower inflation in the period and a pickup in merchandise exports supported the upturn. On the flip side, growth in tourist arrivals softened in Q3.
A full breakdown is set to be released on 1 December.
Looking at 2024, the economy is set to grow at a similar pace than this year’s anticipated level. The external sector, spearheaded by a solid tourism sector, is likely to remain one of the main engines of growth. That said, domestic demand should wane, hampered by the lagged effects of monetary policy tightening. The pace of absorption of EU funds is a key factor to watch. Meanwhile, extreme weather conditions, oil price spikes and additional spillovers from the wars in Ukraine and the Middle East pose downside risks.
Analysts at the EIU commented on the potential impact of turmoil in the Middle East on the Cypriot economy:
“Besides Cyprus’s close proximity to the Israeli-Palestinian conflict, Cyprus has close ties with Israel as well as neighbouring Lebanon, which is at risk of being dragged into the conflict if it spreads to the wider region. This poses several challenges for Cyprus including the risk of a renewed rise in energy prices (Cyprus is heavily dependent on imports for electricity generation) and a potential hit to trade, tourism and investment with Israel and other affected markets.”