GDP growth accelerates in Q1

GDP growth strengthens: According to a preliminary estimate, GDP growth gathered traction to 3.0% year on year in the first quarter from 2.6% in the fourth quarter of last year. On a working-day and seasonally adjusted quarter-on-quarter basis, economic growth gained momentum, accelerating to 1.3% in Q1, compared to the previous period’s 0.1% expansion and marking the strongest growth since Q1 2022.

Construction and hospitality sectors drive growth: The advance release did not include a comprehensive breakdown, but the statistical office stated that the construction, hospitality, information and communication, and wholesale and retail trade sectors underpinned year-on-year growth. Meanwhile, the picture regarding the external sector appeared more mixed: Tourist arrivals growth slowed in Q1 from Q4, while goods exports rebounded sharply, likely due to front-loading ahead of greater U.S. tariffs. A detailed breakdown is set to be released on 2 June.

Momentum to remain healthy: Our panel expects the economy to lose steam in the coming quarters as exports suffer from heightened trade turmoil. That said, annual GDP growth will remain well above the Euro area average and Cyprus’ 10-year pre-pandemic trend, supported by upbeat domestic demand.

Panelist insight: Analysts at the EIU commented on the outlook: “Strong growth in Cyprus in the coming quarters will be underpinned by ECB easing. This will increase consumer and corporate credit demand and reduce household interest payment burdens, freeing up disposable income for discretionary spending elsewhere. Strong real wage growth and a tight labour market will support private consumption. Lower inflation and strengthening demand in Cyprus's key European tourism source markets will ensure a continued strong performance of the all-important tourism sector.”

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