GDP growth records fastest upturn since Q3 2022 in Q1

Annual GDP growth accelerated to 3.5% in the first quarter, from 2.1% in the fourth quarter of last year. Q1's reading marked the strongest expansion since Q3 2022. On a working-day and seasonally adjusted quarter-on-quarter basis, economic growth edged up to 1.2% in Q1, following the previous quarter's 1.0% increase.

Household spending growth accelerated to 3.9% year on year in Q1 compared to a 3.0% expansion in Q4, buttressed by lower inflation. Public spending improved to a 4.0% expansion in Q1 (Q4 2023: +1.5% yoy). Meanwhile, fixed investment contracted 35.2% in Q1, marking the worst reading since Q4 2021 (Q4 2023: +10.9% yoy). The sharp downturn was due to a high base of comparison for investment in machinery plus equipment and weapon systems. On the external front, exports of goods and services fell 0.1% on an annual basis in the first quarter, which was above the fourth quarter's 6.8% contraction. Notably, exports of services rebounded from Q4. Conversely, imports of goods and services fell at a more pronounced pace of 12.6% in Q1 (Q4 2023: -2.1% yoy), marking the worst reading since Q3 2009.

Our panelists expect the economy to lose some steam in H2 as domestic demand cools. Nonetheless, GDP growth for 2024 as a whole is set to exceed last year’s outturn, supported by a tourism-led rebound in exports. Additional spillovers from the wars in Ukraine and the Middle East pose a downside risk.

Analysts at the EIU commented on the outlook for the key tourism industry: “We continue to expect the tourism sector to have a solid year in 2024. However, arrivals are unlikely to surpass 2019 levels until 2025, owing to economic weakness in tourism source markets and Cyprus's exposure to instability in the Middle East.”

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