Cyprus Economic Outlook
A flash estimate revealed that annual economic growth eased to 3.4% in Q1 from 4.6% in Q4. Weaker investment was likely behind the downtick as interest rates rose throughout the period. That said, the print showed that the hospitality sector contributed positively to growth; year-on-year tourist arrivals rose markedly during the quarter. Moreover, the wholesale and retail trade sectors performed well, as inflation declined in Q1. Shifting to Q2, April data indicates that momentum likely deteriorated further: Economic sentiment ticked down, while tourist arrivals grew at a softer rate relative to Q1’s average. In other news, on 2 May, the government decided to eliminate VAT on basic items such as food and hygiene products in a bid to shield consumers from price pressures. The policy will last for at least 6 months.
Harmonized inflation fell to 3.9% in April from March’s 5.8%, on softer price pressures for housing and utilities and transportation. Inflation is set to decline slightly in the coming months due to higher interest rates and VAT cuts. Volatile oil prices pose a risk to the outlook.