Cyprus: GDP growth records slowest increase since Q1 2021 in the third quarter
GDP growth waned to 5.5% year on year in the third quarter, from 5.9% in the second quarter. Q3’s reading marked the worst reading since Q1 2021.
The downturn was driven by weakening growth in private consumption, fixed investment and exports. Household spending growth edged down to 7.1% year on year in Q3 from a 7.4% expansion in Q2 amid higher inflation. Government consumption improved to a 2.3% expansion in Q3 (Q2: +0.4% yoy). Meanwhile, fixed investment growth waned to 2.8% in Q3, from 29.8% logged in the prior quarter.
Exports of goods and services growth fell to 13.2% in Q3, marking the worst result since Q1 2021 (Q2: +17.3% yoy). In addition, imports of goods and services growth waned to 19.0% in Q3 (Q2: +27.6% yoy). The slowdown in the external sector reflects a base effect; the tourism sector continued its strong rebound during the quarter.
On a working-day and seasonally adjusted quarter-on-quarter basis, economic growth accelerated to 1.3% in Q3, compared to the previous period’s 0.3% increase.
Going forward, the positive contribution of the tourism sector will dwindle as the base effect of the pandemic fades. Regarding domestic activity, still-elevated inflation, coupled with tighter financial conditions, will exert downward pressure on private consumption and fixed investment. EU Recovery Funds should provide support, while volatility in the energy market poses a risk.