The Cyprus economy, continued to record noteworthy GDP growth, despite the outbreak of the war. Real GDP growth in Cyprus expanded by about 6 percent during the first half of 2022, mainly driven by a faster than expected recovery in tourism-related activities and, to a lesser extent, by growth in information and communication activities and in professional services. At the same time, weakness in the Cyprus GDP performance could be expected to become visible over the second half of 2022 and early 2023, primarily owing to the anticipated worsening in the international economic outlook. More specifically, the impact of the war is expected to be channelled directly, via the disruption in trade of services and the rise in commodity prices, as well as indirectly, via the impact on business and consumer confidence. Our exposure to Russia via the export of services is the most significant vulnerability, with the most important exposure relating to financial and other business services and, to a lesser extent, tourism and transport. 2/4  BIS - Central bankers' speeches  In terms of inflation, the Harmonised Index of Consumer Prices (HICP) reached 9,6 percent in August 2022 compared with 3,3 percent in August 2021. For the period January-August 2022, inflation climbed to 8 percent, compared to 1,2 percent in the same period in 2021. The spike in the domestic inflation is mostly attributed to the significant negative impact of the war, as well as the continued consequences of the pandemic.
Arrangements like these, with trusted protocols and agreed measures, will build confidence in managing the risks of importation of the Covid-19 virus, and allow countries to re-open to trade and travel. Strengthening Digital Connectivity The second area countries must co-operate on is relatively new but is growing rapidly in importance – digital connectivity. We all know how the Covid-19 pandemic has accelerated the use of digital services. Amid safe distancing measures and movement controls, many firms have shifted to digital channels to conduct business. 2/4  BIS central bankers' speeches  E-commerce, online education, tele-medicine, remote working, internet banking – have all taken off spectacularly. The ability to conduct business on digital platforms, especially across borders, has become a competitive advantage – for it allows people and businesses to tap onto a global market for sales or supplies or solutions. We need to deepen digital connectivity across countries, to expand opportunities for our people and businesses. An area that could clearly benefit from digital and data connectivity is cross-border trade. There is a large number and variety of parties involved in an international trade transaction. The trade process is highly fragmented, paper-based, slow, and cumbersome. Harmonising and digitising trade documents and putting them through a seamless digital platform will help to make trade more efficient and secure. Food safety will be an area of high priority as we emerge from the Covid-19 pandemic. This often requires traceability in supply chains that span multiple countries. Being able to do this well requires data sharing and digital connectivity.