Economic Prospects for Cyprus Shine, Despite Risks
In a recent assessment by international rating agency Morningstar DBRS, Cyprus has been awarded a BBB (high) long-term credit rating, with the agency highlighting a stable trend that reflects the island nation’s robust economic and fiscal progress. The agency emphasized that “The stable trend balances favourable economic and fiscal developments against important downside risks,” indicating a cautiously optimistic view of Cyprus’s financial future.
With a real GDP growth rate of 2.5 percent in 2023, Cyprus stands out in the Euro area, which averaged a growth rate of just 0.4 percent. This economic performance has not only reinforced public finances but has also contributed to a significant reduction in the country’s debt-to-GDP ratio, which fell to 77.4 percent at the end of 2023.
The agency attributed Cyprus’s high ratings to several key factors, including a stable political climate, prudent fiscal and economic policies implemented by the government in recent years, and a favourable government debt profile. Morningstar noted that the economic outlook remains favourable, with expectations of private consumption getting a boost from an increase in real wages and strong employment growth. Additionally, investment activities are projected to rise, fueled by the inflow of Next Generation EU funds and several major investment projects, especially within the tourism and residential real estate sectors.
Projections by the Central Bank of Cyprus (CBC) also suggest an optimistic future, with forecasts indicating that real GDP growth will moderately strengthen to 2.6 percent in 2024 and further to 3.1 percent in 2025. However, Morningstar also cautioned that growth prospects face significant risks, including potential escalations in the military conflict in Ukraine and possible prolonged trade disruptions in the Red Sea.
Overall, while acknowledging the challenges ahead, the agency’s rating and commentary provide a vote of confidence in Cyprus’s economic resilience and potential for continued growth.
