The Cypriot economy has shown resilience in a challenging global environment and is expected to maintain this trend in the future, Central Bank Governor Christodoulos Patsalides said on Monday during a parliamentary review of the 2025 central bank budget.
In his statement, Patsalides revealed that Cyprus is set to record the second-highest GDP growth rate in the European Union this year. For 2024, GDP is projected to grow by 3.5%, significantly outperforming the euro area average of 0.8%. Looking ahead, growth rates of 3.1% in 2025 and 3.2% in 2026 are forecasted, underscoring the economy’s strength.
Despite external pressures, such as geopolitical conflicts in Ukraine and the Middle East, the Cypriot economy has shown a capacity to absorb shocks. Patsalides acknowledged that these conflicts impact energy prices and consumer behavior but noted that the diversified and healthy growth of Cyprus’ economy acts as a safety net. Other risks to economic stability include climate change and cyber threats.
Highlighting international confidence in Cyprus’ economic stability, Patsalides cited Moody’s recent upgrade of the country’s sovereign credit rating from Baa2 to A3, describing it as a “major vote of confidence.”
Inflation for 2024 is expected to end at 2.2%, down from 3.9% in 2023 and below the European Central Bank’s target of 2%. The labor market is also improving, with unemployment rates decreasing.
Addressing interest rates, Patsalides emphasized that they will remain “sufficiently restrictive” to curb inflation. However, he noted that interest rates in Cyprus are slower to adjust than in other euro area countries. This lag is attributed to the small size of the economy and excess liquidity in the banking sector, with a loans-to-deposits ratio of 49.3%, compared to the EU average of 106.5%.
Despite this slower responsiveness, lending rates in Cyprus are on a downward trajectory. New business loans averaged 5.32% in September 2024, down from 6.06% the previous year. Similarly, new housing loans saw a decline, averaging 4.53% in September compared to 5.19% in January. Patsalides acknowledged dissatisfaction with the gap between lending and deposit interest rates but noted that the Central Bank lacks the authority to intervene.
When questioned about taxing the “windfall profits” of commercial banks, Patsalides cautioned against such measures, citing potential risks to foreign investment.
On cryptocurrencies, he expressed skepticism, highlighting the lack of reliable data on the market’s size and price-setting mechanisms.
The session concluded parliament’s review of the 2025 state budget. Christiana Erotokritou, chair of the House finance committee, criticized semi-governmental organizations for failing to submit their budgets on time.
Source: Cyprus Mail