Cyprus’ GDP growth drops sharply after the Ukrainian war

The University of Cyprus has downgraded its forecast for economic GDP growth to 2.6% this year due to Russia’s invasion of Ukraine, warning that rising inflation could reduce the quality of banking system assets.

The UCY Economic Research Center’s outlook for May estimates that real GDP growth will be 2.6 percent, 1.5 percentage points lower than the January forecast.

By 2023, real GDP growth is estimated to return to 3.1%.

“Russia’s invasion of Ukraine and sanctions on Russia have weakened the outlook for Cyprus, primarily as a result of the expected collapse of tourist arrivals from Russia and Ukraine, rising international commodity prices and weakening. Financial feelings The financial situation is deteriorating. “

The ERC warned: “War in Ukraine and sanctions against Russia could have more negative impact on activities in Cyprus than currently predicted.

“In addition, continued war and stricter EU sanctions on Russia could weigh on growth prospects, primarily through rising prices for fuel, food and raw materials.”

UCY economists said the new wave of COVID-19 continues to pose a significant downside risk to the outlook through new containment measures and supply bottlenecks that put upward pressure on prices.

“Wars in Ukraine, rising energy prices and continued pandemics may require additional policy support.”

ERC points out high financial challenges, Public debt Monetary tightening can cloud the outlook.

In response to high inflation, tightening fiscal conditions can negatively impact the quality of a bank’s assets and pose a risk to the outlook.

Inflation (CPI) is projected to reach 4.8 percent in 2022 and fall to 2.2 percent in 2023, according to the ERC, a 2.2 percentage point revision to previous forecasts this year.

“Russia’s invasion of Ukraine and sanctions on Russia are increasing inflationary pressures through rising international commodity prices, especially fuel and food prices.”




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