According to the European Commission’s report on the Cypriot economy, the observed economic growth and reduction in inflation place the Cypriot economy on a healthy footing, while at the same time, the correction of macroeconomic imbalances continues.
Specifically, on 25th March 2024, the European Commission (EC) published its In-Depth Review (IDR) for the Cypriot economy.
In-Depth Reviews are prepared annually as part of the European Semester process for coordinating economic policies and aim to identify and assess the severity of macroeconomic imbalances and risks in the member states.
Specifically, for Cyprus in 2024, macroeconomic imbalances are identified in the areas of public, private, and external debt.
The net international investment position remains negative; however, it has improved and approaches sustainable levels. The current account deficit in 2023 is expected to widen, mainly due to significant increases in energy prices.
However, the normalization of energy prices and the recovery of external demand will contribute to improving the current account balance. Both public and private debt have decreased significantly and are expected to continue on a downward trajectory in the coming years.
Additionally, the stock of non-performing loans in the banking sector continued to decline, and the possibility of new non-performing loans is remote. In the future, the vulnerabilities of the country are expected to continue to be corrected, supported by economic growth.
The In-Depth Review also analyses Cyprus’ trade ties and emphasizes that Cyprus’ dependence on European economies and primarily on third-country economies makes the Cypriot economy vulnerable to geopolitical developments and creates disruptions in its trade relations.
The In-Depth Review is based on the EC’s winter forecasts, which largely align with the forecasts of the Ministry of Finance.
Specifically, the EC estimates that the growth rate for 2023 will be 2.4% and will increase to around 3% in 2024 and 2025, while also forecasting a reduction in inflation and unemployment. Cyprus’ fiscal position is expected to remain surplus, and debt to continue its downward trajectory.
The Ministry of Finance, in a statement, welcomes the results of the In-Depth Review, which demonstrate the government’s correct economic policy and efforts to correct the macroeconomic imbalances of the Cypriot economy.
It notes that the government’s concern remains the implementation of policies that ensure the further correction of imbalances and the strengthening of the competitiveness of the Cypriot economy, placing particular emphasis on green and digital transition.
At the same time, as correctly noted in the In-Depth Review, the Cypriot Recovery and Resilience Plan includes a series of significant reforms that will contribute to further reducing the macroeconomic vulnerabilities faced by the Cypriot economy and expanding its productive base, ensuring macroeconomic stability and sustainability of public finances.
