High inflation not only erodes consumers’ purchasing power, but also inflates the national accounts
The numbers always tell the truth. But you can’t look at the growth figure in isolation, without correlating it with inflation, without adjusting it for the imported GDP of companies with international operations, and without calculating how much of it is the result of government spending. If something goes wrong, the markets will “bite” us. They’ve done it before…
Upon closer inspection, economic growth is satisfactory and certainly not artificial, but there are signs that it isn’t as healthy as it appears. This won’t become apparent immediately, but it explains why we might be caught off guard yet again if external factors push the economy back into recession and we suddenly discover structural weaknesses in public debt and the market, which exist today but remain hidden.
ΣΧΕΤΙΚΑ ΑΡΘΡΑ
The President of the Republic, Nikos Christodoulides, announced that growth for 2026 will reach 3.5% of GDP, and we have no reason to doubt this. However, for those of you who do not feel this growth in your personal finances, it is probably not your fault. This growth is largely eroded by rising living costs, distorted by the fact that several multinational companies have relocated their headquarters to our country (the so-called “Leprechaun Economics” phenomenon), and is fueled by public spending, which is rising this year at a rate of over 4%.
And this isn’t just about how citizens feel. The problem extends to the very structures of the economy: “inflated” growth artificially improves the debt-to-GDP ratio, lulling fiscal reflexes to sleep while the danger looms ahead. Such as the risk of rising borrowing costs, as seen across all Eurozone countries in recent days, with yields on the German 10-year bond reaching 3.4%, while yields also rose in Japan, the U.S., and the United Kingdom. Yields for Cyprus stand at 3.7%, which is also the eurozone average.
Equally important is that the recorded growth relies heavily on public spending. This is not an economy that is growing organically through increased productivity or because households and businesses are investing, but rather through consumption. It is within this context that the 3.5% growth rate should not lull us into complacency but rather provide some relief and keep the government on its toes. Especially next year, when the government will be called upon to pay increased property taxes and cover rising, inelastic operating expenses, we risk discovering abruptly that reality is far removed from the “rosy” 3.5% figure announced by the President.
