GDP in Cyprus

Cyprus - GDP

Economy rebounds in the second quarter

A second reading of national accounts data confirmed that the economy bounced back in the second quarter, growing 12.8% year-on-year, above the 2.0% contraction seen in the first quarter.

The upturn reflected a broad-based improvement in the domestic economy: Private consumption growth rebounded, growing 14.0% year-on-year in Q2 and contrasting the 5.8% contraction in Q1, as the gradual easing of Covid-19 restrictions released pent-up demand. Similarly, public spending growth rose to 13.2% in Q2 (Q1: +12.1% yoy) as the government continued to deploy fiscal tools in order to support the recovery. Furthermore, fixed investment growth hit an over two-year high of 65.1% in the second quarter (Q1: +8.0% yoy), as falling numbers of Covid-19 cases led to firmer business confidence and stronger activity in turn.

On the external front, exports of goods and services rebounded, growing 3.5% in Q2 (Q1: -13.9% yoy) amid the reopening of key international trading partners and the start of the tourist season. Moreover, imports of goods and services rebounded markedly, growing 16.6% in Q2 (Q1: -15.8% yoy), marking the best reading since Q4 2017 and by far surpassing the growth recorded in exports. As such, the external sector weighed on the headline reading.

Meanwhile, on a working-day and seasonally-adjusted quarter-on-quarter basis, economic growth slowed notably to 0.2% in Q2, following the previous quarter's 1.7% expansion. The result marked the slowest expansion since Q2 2020, highlighting that a low base effect flattered the annual reading.

The economy should recover from 2020’s pandemic-induced contraction this year, in line with strengthening foreign and domestic demand, with incoming EU funds and the ECB’s accommodative stance providing further support. However, the possibility of stricter travel and domestic restrictions amid the spread of more infectious Covid-19 variants remains a key downside risk, particularly for the all-important tourism industry.

FocusEconomics panelists see activity rebounding and growing 4.1% in 2021, which is down 0.1 percentage points from last month’s forecast. In 2022, GDP growth is seen at 4.0%.