The Cyprus economy has showcased its strong resilience, in a particularly difficult period recording, “comparatively one of the highest growth rates in the European Union,” said Dr George Mountis, CEO of Delfi Partners.
This was all the more remarkable considering the concerted efforts to contain inflation through strategic monetary policy decisions, which, according to Mountis, “seem to be succeeding in Cyprus.”
According to the latest forecasts by the European Commission, the Cypriot economy experienced a growth rate of 2.4 per cent in 2023. Furthermore, “it is estimated to grow at 2.8 per cent in 2024 and 3 per cent in 2025.”
On the flip side, inflation, which was a significant concern at 8.1 per cent in 2022, has seen a decrease to 3.9 per cent. Mountis optimistically notes that it “is expected to decrease further to 2.4 per cent in 2024 and 2.1 per cent in 2025.”
Given the broader economic and geopolitical developments, the forecasts for the Cypriot economy are positive. However, Mountis acknowledges the short-term sacrifices. “Of course, to achieve the containment of inflation, decisions were made that affect the citizens’ incomes in the short term,” he said.
A critical parameter in this equation is the interest rates, whose increase “exerts a significant pressure on the income of households.” Yet, there was a silver lining, Mountis maintained. “Given that the decisions of the European Central Bank are temporary and there is optimism that they will begin to change in 2024, possibly from June, it is likely that the de-escalation of interest rates will begin domestically as well.”
This potential development is crucial for facilitating the financial well-being of households and businesses, as well as the banks themselves. “A prolonged period of high-interest rates can lead, among other things, to the creation of new Non-Performing Loans,” he said.
On a positive note, “unemployment is at very low levels and we are gradually approaching full employment conditions.” This created another issue, that “many sectors face the problem of a lack of personnel, both specialised and non-specialised.”
The strategies for employing and attracting foreign labour that the government implements could, Mountis suggests, “in the coming years, see a general increase in the country’s population with what this entails in terms of economic development and consumption.”
Despite intense geopolitical instability Cyprus’ “real estate sector showed particular resilience in 2023 despite the expectation that 2024 will be a year of significant challenges.”
According to data of Delfi Analytics, sales contracts in 2023 increased by 16 per cent compared to 2022 and reached the highest level since 2008. A key driver for this development, Mountis points out, was “the increased demand from abroad, and especially from natural and legal persons outside Europe,” which compensated for the decrease in demand from Europeans.
The rise in the purchase prices of residential properties led many to turn to renting, resulting in a significant increase in rents, especially for apartments. “According to the latest data from the Central Bank of Cyprus, the prices of apartments in 2023 for the first time exceeded those of 2010,” said Mountis adding that this trend had led to an increase in properties purchased to rent, as part of an investment decision.
“Indeed, from our experience of providing property management services and also through Phaedrus Living, which deals with short-term leases, many Cypriots and foreigners are now investing in real estate to have a satisfactory return, either through long-term rental or through the short term,” he said.
Mountis emphasises the importance of having the right policies to maintain the dynamics of the real estate sector. “Actions are needed to maintain economic activity to cover the increased demand which in recent years exceeds the supply, further actions to create affordable housing projects, and specific policies to eliminate the problem of staff shortages which is delaying important building projects.”
The resilience of the real estate sector and its contribution to the sustainable development of the Cypriot economy will largely depend on international developments. “This does not mean that timely decisions should not be made to protect the sector and interested buyers,” said Mountis.
