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Government Considers Extending Relief Measures For Households And Businesses

In response to ongoing economic pressures, the Cypriot government is poised to extend key relief measures aimed at alleviating the financial burden on households and businesses. During a meeting on 19th June 2024, the Cabinet will decide on the continuation of a zero VAT rate on essential goods and the extension of subsidies to offset energy costs. These measures, initially set to expire on 30th June 2024, may be prolonged for an additional two months, subject to review and recommendations from the European Commission.

Zero VAT and Energy Cost Relief

The zero VAT rate on essential goods has been a critical policy tool in mitigating the impact of inflation on everyday expenses for Cypriot families. By removing the value-added tax on these items, the government aims to reduce the cost of living and ensure that basic necessities remain affordable. This measure is particularly important in the current economic climate, where inflationary pressures are affecting consumer prices across the board.

In addition to the VAT relief, the government is also considering extending subsidies on energy costs. High energy prices have been a significant contributor to overall inflation, impacting both households and businesses. The proposed extension of these subsidies is designed to provide continued support to those struggling with high utility bills, thereby easing the financial strain and promoting economic stability.

These measures come at a time when Cyprus is experiencing a complex economic landscape, characterised by rising inflation and the need for strategic fiscal management. The government’s proactive stance in extending these relief measures reflects a commitment to supporting the economic well-being of its citizens. By addressing the immediate financial challenges faced by households and businesses, the government aims to foster a more resilient and sustainable economic environment.

European Central Bank Report Highlights Stable Inflation and Economic Outlook

Overview Of Inflation Trends

The latest European Central Bank survey shows a slight decline in median inflation expectations over the next 12 months, decreasing from 2.8% in August to 2.7% in September. Despite this minor adjustment, consumer perceptions of past 12-month inflation have held steady at 3.1% for the eighth consecutive month. Long-term projections for three- and five-year inflation remain stable at 2.5% and 2.2% respectively.

Consumer Expectations Drive Income And Spending Projections

Across the board, expectations for nominal income growth over the upcoming year have remained consistent at 1.1%. However, there is a noticeable shift in spending behavior: while perceived nominal spending growth for the past year slipped slightly to 4.9% from 5.0%, expectations for spending growth over the next 12 months rose to 3.5%. Notably, lower income groups continue to forecast marginally higher spending increases compared to their higher income counterparts.

Stability In Economic And Labour Market Outlook

Economic growth expectations are modestly pessimistic, with respondents forecasting a contraction of -1.2% over the next 12 months. Concurrently, anticipated unemployment levels remain unchanged at 10.7% a year ahead, though the outlook varies by income, with lower income households expecting unemployment rates as high as 12.7%, while higher income groups maintain expectations around 9.4%. Overall, the slight difference between current and future unemployment suggests a broadly stable labor market outlook.

Housing Market And Credit Conditions

The survey also reveals an upswing in expectations related to the housing market. Home price growth expectations have edged higher to 3.5%, and anticipated mortgage interest rates have risen modestly to 4.6%. Similar to other metrics, expectations vary by income, with lower income households expecting higher mortgage rates. In recent months, a marginal decline in reported credit tightening over the past 12 months contrasts with a renewed forecast of tighter credit conditions in the forthcoming year.

Conclusion

The ECB’s latest findings underscore the delicate balance between stable long-term economic forecasts and short-term adjustments in consumer expectations. The slight dips in inflation expectations, alongside stable perceptions of past inflation, delineate a marketplace that is both cautious and measured. As income, spending, and housing market metrics continue to evolve, these indicators provide critical insights for policymakers and investors navigating an increasingly complex economic landscape.

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