Inflation, as measured by the Harmonised Index of Consumer Prices (HICP), is expected to drop significantly to 2.2% in 2024, down from 3.9% in 2023, aligning closer to the medium-term target of 2%.

The Central Bank of Cyprus (CBC) has revised its GDP growth forecast for 2024 upward to 3.7%, an increase of 0.2 percentage points.

Accompanying this growth, the unemployment rate is projected to decrease from 5.8% in 2023 to 5% in 2024, continuing its decline to 4.6% by 2027.

Core inflation, excluding energy and food, is also projected to decline from 3.8% in 2023 to 2.6% in 2024, with a further decrease to 1.9% in 2026 before a slight rise to 2.0% in 2027.

Potential challenges include domestic taxation on multinational profits and a slower-than-expected easing of financing conditions, which may adversely affect economic prospects.

Wage increases are anticipated to remain modest, which will help limit inflationary pressures, while a gradual implementation of a carbon tax starting in 2025 may lead to minor fuel price hikes.

However, the CBC noted a slight upward revision in service inflation for 2024, resulting in a 0.1 percentage point increase in the overall inflation forecast.

The economic outlook for 2024 is characterized by balanced risks, though increased downside risks are expected for 2025-2027 due to geopolitical tensions and uncertain external demand.

This decrease in inflation is attributed to reduced external inflationary pressures, including lower energy and raw material prices, as well as the effects of a unified monetary policy.

Forecasts for GDP growth in 2025 and 2026 have been revised downwards, reflecting the need for increased imports to meet higher domestic demand.

While exports, particularly in non-tourism services, continue to support growth, they do not fully offset the rising imports.

Inflation risks for 2024 are balanced, but they are slightly tilted upwards for 2025-2027, mainly due to potential geopolitical tensions and uncertainties in global trade policy.