Cyprus: GDP grows at softest pace since Q1 2021 in Q2
GDP growth waned to 2.1% year on year in the second quarter, from 3.1% in the first quarter. Q2’s reading marked the slowest growth since Q1 2021.
Private consumption growth fell to 3.8% in Q2, marking the weakest expansion since Q4 2021 (Q1: +6.3% yoy). Government consumption growth moderated to 3.5% in Q2 (Q1: +4.4% yoy). Meanwhile, fixed investment contracted 27.1% in Q2, dented by sharp contractions in machinery and transport investment (Q1: +58.6% yoy).
Exports of goods and services fell 3.4% on an annual basis in the second quarter, which was above the first quarter’s 6.2% contraction. Conversely, imports of goods and services deteriorated, contracting 5.5% in Q2 (Q1: +15.4% yoy).
On a working day- and seasonally adjusted quarter-on-quarter basis, economic activity declined 0.4% in Q2, contrasting the previous quarter’s 1.1% growth. Q2’s reading marked the first sequential contraction since Q2 2020, which signals that underlying momentum is fading.
In H2 2023, the economy is set to slow further as fading pent-up demand and external headwinds constrain the tourism sector. Moreover, tighter financing conditions will dent domestic activity. That said, the economy is seen outperforming the majority of its Euro area peers on the back of robust public spending and investment activity—supported by EU funds. Further spillovers from the war in Ukraine pose a downside risk to the outlook, while energy markets and the health of the banking sector are key factors to monitor.