The support of salaries in Cyprus by the Cost of Living Allowance (CoLA) is expected to help the island republic outperform the eurozone in growth terms next year, according to a statement by the Cypriot Ministry of Finance on Tuesday.
The European Commission projected in its Spring Forecasts on Monday that the Cypriot economy will expand 2.3% this year, but growth is expected to accelerate to 3.5% in 2023, compared to a eurozone average rate of 2.3% next year.
This will be thanks not only to tourism but also to the CoLA system, the ministry in Nicosia stated.
CoLA makes up for the loss of income to some extent, Cyprus President Nicos Anastasiades said on Tuesday, ahead of a meeting he is convening on Friday to discuss the economic consequences of the war in Ukraine with members of the cabinet.
Responding to a question by a journalist, the president said the situation is difficult and is getting worse by the day. He refrained from providing more information as to any decisions that may be taken at the meeting.
He did say, however, that the Cypriot government is determined to help as much as state finances allow, citing also the need to tackle inflation, as shaped by international developments and especially the war, which is ongoing, arguing that no one can foresee the extent of any alleviating measures.
He pointed out, however, that, “at least in Cyprus and two other European countries, there is the CoLA, which to some extent compensates – certainly depending also on inflation – the loss of income.”
Inflation for 2022 is expected at 5.2%, due to the increase in energy prices, but significantly lower than the average inflation in the EU and the eurozone, which is estimated at 6.8% and 6.1% respectively. For 2023, inflation is expected to drop further to 2.7%, the Finance Ministry said.
It also noted that the implementation of the Cyprus Recovery and Sustainability Plan is expected to further support investment this and next year, benefiting growth.
Referring to the labor market, the ministry noted that a temporary increase in unemployment is expected to reach 7.8% this year, due to reduced economic activity, while in 2023 it will continue its downward trend to 7.3%.