The Cypriot economy is projected to grow by 5.5 percent this year despite adverse international economic conditions, the Central Bank of Cyprus (CBC) said here on Thursday.

However, the CBC said in a press release that the outlook of the country’s economy is tempered by the upheaval in the energy sector, which is expected to lower demand later in the year.

The new CBC forecast is 2.8 percentage points higher than its previous projection, mainly as a result of the better-than-expected performance of tourism-related economic activities and, to a lesser extent, of investments in the communication sector by foreign companies linked to the technology sector.

The CBC said that the conflict in Ukraine and the subsequent international sanctions imposed on Russia are the main factors adversely affecting the Cypriot economy.

It said that the economic effects of the conflict were not so pronounced in the first six months of this year, but are expected to impact consumer and business sentiment late in the year and during the first quarter of 2023.

“The significant increase in energy prices is expected to reduce the purchasing power of consumers, which combined with rising interest rates will result in a negative impact on domestic demand despite the utilization of savings accumulated due to the pandemic,” the CBC’s press release said.

It added that the country’s gross domestic product (GDP) is projected to grow by 2.5 percent and 3.1 percent in 2023 and 2024, respectively, as a result of the unfavourable outlook in the external environment.