Cyprus Government Consumption (ann. var. %)

GDP grows at softest pace since Q1 2021 in Q4 2022

GDP growth waned to 4.6% year on year in the final quarter of 2022 from 5.5% in the third quarter. Q4’s reading marked the sixth consecutive deceleration, suggesting that the base effect from the Covid-19 pandemic is fading.

The downturn was broad-based, with private consumption, public spending, fixed investment and exports all weakening. Household spending increased 8.1% in the fourth quarter, which was below the third quarter’s 8.5% expansion, despite slightly lower inflation during the period. Public spending growth slowed to 2.9% in Q4 (Q3: +7.3% yoy). Meanwhile, fixed investment contracted 2.3% in Q4, marking the worst result since Q1 2022 (Q3: +6.2% yoy), as the downturn in machinery investment worsened.

On the external front, exports of goods and services growth fell to 8.6% in Q4, marking the worst result since Q1 2021 (Q3: +12.1% yoy). The deceleration was chiefly driven by a slowdown in the tourism sector. In addition, imports of goods and services growth moderated to 10.7% in Q4 (Q3: +19.0% yoy).

On a working-day and seasonally adjusted quarter-on-quarter basis, economic growth moderated to 1.1% in Q4, following the previous period’s 1.6% increase.

Shifting to this year, economic growth is set to slow further. The base effect of the pandemic will dissipate, while global headwinds will constrain the all-important tourism sector. Additionally, tighter financing conditions and still-elevated inflation will take a toll on domestic activity. That said, EU Recovery funds will provide support. Energy markets and the health of the banking sector are key factors to watch.