Cyprus’ economy is projected to recover in 2021 the output lost in 2020 as a result of the COVID-19 crisis, the Central Bank of Cyprus (CBC) said in its yearly economic bulletin on Wednesday.
The Central Bank also said that risks to the economy are considered to be balanced, though inflation is a slightly worrying factor.
CBC said that following a drop of 5.2 percent in the Gross Domestic Product (GDP) in 2020 (which grew to about 21.1 billion euros in 2019), the economy is projected to bounce back by 5.6 percent in 2021. This should be followed by a growth rate of 3.6 percent, 3.7 percent and 3.8 percent in 2022, 2023 and 2024 respectively.
CBC further forecast a continued reduction of unemployment to 5.6 percent by 2024.
Inflation is projected to reach 2.2 percent in 2021 and 2.5 percent in 2022, mainly due to price increases and energy and supply bottlenecks. It is then expected to decline to 1.2 percent in 2023 and 1.5 percent in 2024.
CBC said that another worrying factor is the still high level of non-performing loans, a legacy of the crisis that hit the economy in 2013 and forced Cyprus into a 10 billion euro bailout by Eurogroup and the International Monetary Fund.
The amount of non-performing loans burdening the balance sheets of banks remains steady at 5 billion euros, CBC said, down from an all-time high of 27 billion euros at the end of 2014.
Tourism, which accounts for more than 21 percent of Cyprus’ GDP, did better than anticipated in 2021. The number of tourist arrivals on the island reached 46 percent of the pre-COVID-19 figure of four million.
However, uncertainty as a result of the pandemic presents a challenge for tourism, and therefore the number of visitors is not expected to return to the pre-COVID-19 level until 2024.