European Commission’s In-Depth Review Sheds Positive Light on Cypriot Economy
The European Commission’s recent In-Depth Review (IDR) of the Cypriot economy, part of the annual European Semester process, has revealed a promising outlook for the Mediterranean island. The report, published on March 25th, 2024, highlights a period of economic growth coupled with a reduction in inflation, suggesting that Cyprus is on a path to correcting its macroeconomic imbalances.
Despite the challenges posed by high levels of public, private, and external debt, the EC’s analysis indicates improvements across the board. The net international investment position, although still negative, is moving towards sustainable levels. The current account deficit widened in 2023, largely due to spikes in energy prices. However, the EC is optimistic that a normalization of energy costs and a rebound in external demand will aid in rebalancing the current account.
Encouragingly, both public and private debt are on a significant decline, with expectations set for this trend to persist. The banking sector also shows signs of resilience, with non-performing loans decreasing and new occurrences appearing unlikely. These factors contribute to the anticipation of continued vulnerability correction, propelled by steady economic growth.
While Cyprus’ trade connections underscore its reliance on European and third-country economies, this interdependence also exposes it to geopolitical risks and potential trade disruptions. Nevertheless, the EC’s winter forecasts, which closely match those of the Cypriot Ministry of Finance, project a rise in growth rates to approximately 3% for 2024 and 2025, alongside diminishing inflation and unemployment figures.
The Ministry of Finance has expressed satisfaction with the IDR’s findings, endorsing the government’s economic strategies and their role in addressing the macroeconomic imbalances. The government remains focused on implementing policies that not only correct these imbalances but also enhance the competitiveness of the Cypriot economy through green and digital transitions.
Moreover, the Cypriot Recovery and Resilience Plan is recognized for its potential to mitigate economic vulnerabilities and broaden the productive base of the country. This plan is integral to ensuring macroeconomic stability and the sustainability of public finances—a testament to Cyprus’ commitment to fostering long-term economic prosperity.
