The Cypriot economy is expected to grow by 2.5% in 2023, well above the euro area average of 0.5%, said the Governor of the Central Bank of Cyprus Constantinos Herodotou on Tuesday at the Annual Cyprus Maritime Forum in Limassol, adding that the shipping sector has been an important pillar of Cyprus’ economic success.
Referring to Cyprus, Herodotou said that the economy showed notable resilience in 2022, recording significant growth of 5.6%, despite the negative international environment, partly due to the higher-than-expected activity in the tourism industry, the non-dependence of the Cypriot economy on Russian gas, as well as the reality that the Cypriot banking sector has very limited exposure to the Russian economy and therefore has not been affected by the sanctions on Russia.
He added that according to the latest Central Bank of Cyprus forecasts of December 2022, the growth of the Cypriot economy is expected at 2.5% this year, which compares well to the euro area average of 0.5%, and inflation is expected to decelerate in 2023, levelling at 3.3%, from 8.1% in 2022.
CBC Governor also noted that economic growth in Cyprus was supported by new lending by the Cyprus banking sector and by foreign direct investment, while due to new incentives, including the facilitation of a fast-tract process for incoming firms, a large number of high value-adding foreign companies have been attracted to Cyprus, such as major multinational firms in the Information, Communication and Technology industry, supporting Cypriot GDP and reinforcing the vision to transform Cyprus into an emerging technology hub in the Mediterranean.
Cyprus’ importance as a foreign investment hub is also reflected in the Greenfield FDI Performance Index, created by FDI Intelligence, according to which in 2021, Cyprus was ranked in 18th place out of 84 countries included in this index (climbing by 50 places compared to 2020), he added.
The shipping sector is another important pillar of Cyprus’ economic success, noted Herodotou, with Limassol as Cyprus’ maritime capital being the home of influential names in the shipping industry, boosting the country to the top ranks of the sector.
He added that Cyprus is the largest third-party ship management centre in the European Union, one of the largest in the world, while the importance of the sector is evident in the balance of payments data where it ranks third in terms of its contribution to the total value of exports of services at 19% for 2021, after the financial services and ICT sectors, with contributions of 32% and 23%, respectively.
Challenges for policy makers include the global inflation dynamics currently being addressed by central banks, with monetary policy being utilised at a different pace in different regions, due to the differences in economic fundamentals, Herodotou noted.
Regarding the shipping sector, he said it will remain the backbone of the global economy, adding that Cyprus continues to strengthen its role in the shipping sector as a hub for ship management, ship owning and vessel chartering services, aiming to maintain and enhance further the competitiveness and prospects of the sector.
He also contrasted economic and inflation developments in the US and the euro area, Herodotou pointing out that even though both economies were hit by rising inflation, there were different factors behind it, since in the United States demand factors have been the main determinants of the upward inflation trend, while in the euro area price increases were, initially, mostly driven by the supply shock caused by the energy crisis.
The second main difference, he continued, relates to the labour market dynamics of the two economies, with the US labour market exhibiting at a relatively early stage a greater degree of tightness, evidenced by stronger wage growth in the US than in the euro area, while in the euro area the pick-up in wage growth is relatively a more recent phenomenon.
Source Cyprus News Agency