GDP in Cyprus

Cyprus GDP

Economy grows at softest pace since Q1 2021 in Q1 2023

GDP growth slowed to 3.4% year on year in the first quarter, from 4.6% in the fourth quarter of last year. Q1’s reading marked the softest expansion since Q1 2021 and the seventh consecutive deceleration, which suggests that the base effect from Covid-19 is fading.

Household spending growth fell to 6.3% in Q1, marking the weakest expansion since Q4 2021 (Q4 2022: +8.8% yoy). Public consumption rebounded, growing 4.4% in Q1 (Q4 2022: -2.6% yoy). Meanwhile, fixed investment bounced back, growing 58.6% in Q1, likely boosted by EU recovery funds, contrasting the 2.3% decrease in the previous quarter.

On the external front, exports of goods and services contracted 0.5% in Q1, as lower merchandise exports offset higher tourism arrivals (Q4 2022: +2.7% yoy). Conversely, imports of goods and services growth sped up to 17.0% in Q1 (Q4 2022: +6.0% yoy).

On a working-day and seasonally adjusted quarter-on-quarter basis, economic growth eased to 0.8% in Q1, from the previous quarter’s 0.9% growth. Q1’s reading marked the slowest growth since Q2 2022.

Going forward, the economy is seen slowing further. The base effect of the pandemic will dissipate, while pent-up demand for tourism is likely to fade. Additionally, tighter financing conditions and still-high inflation will constrain domestic activity. On the flip side, EU recovery funds will provide support. Despite projecting a marked slowdown, our panelists expect activity to remain dynamic and the economy to expand at a faster pace than most EU countries. Energy markets and the health of the banking sector are key factors to watch.