NICOSIA – European Union sanctions against Russia for the invasion of Ukraine will likely see Cyprus’ economy – which relies on Russian tourists and investors – taking a beating, ratings agency DBRS Morningstar reported.

The firm left its baseline macroeconomic scenario unchanged for Cyprus, but sees a risk of deterioration, mostly over the sanctions that include barring Russian airlines – which means no Russian tourists for the island.

The Canada-based agency said its baseline projection for Cyprus in 2022 is for growth of 4.1 percent during the lingering COVID-19 pandemic, unchanged from December, 2021 estimates, said Kathimerini.

The agency added that its projection for 2023 was marginally reduced by 0.1percent but as much as 3.3 percent without explaining a gap that’s significant in terms of growth analysis.

Unemployment is expected to be 6.9 percent this year, in line with earlier estimates, but seen falling to 6.4 percent in 2023, down 0.1 percent from a previous projection, the report said.

“Baseline forecasts have deteriorated modestly for most economies over the past quarter,” the agency said, adding it expects “some additional deterioration in growth forecasts for 2022 over coming months, particularly in Europe, as the Russian invasion of Ukraine has added another major source of uncertainty.”

While Russia and Ukraine account for less than 2 percent of global GDP, the agency said that they “play outsized roles in several important global markets, including oil and gas, agriculture, fertilizer and metals. Commodity prices have risen, contributing to inflation and weakening the growth outlook,” the report added.

The agency said the war and sanctions are adding to supply chain disruptions that have brought shortages of commodities – even more expensive to get to an island – and driving up energy costs and prices of goods.

“The impact of the Russian invasion of Ukraine could intensify in a variety of ways,” said Thomas R. Torgerson, co-head of Sovereign Ratings at DBRS Morningstar, the paper reported.

He also warned that “if the global environment prolongs and propagates additional price shocks, we could ultimately see a period of low growth with high inflation. This could subsequently lead to larger interest rate hikes as central banks seek to rein in inflation expectations.”

European Central Bank head Christine Lagarde will visit Cyprus at the invitation of the Central Bank of Cyprus Governor and ECB Governing Council member Constantinos Herodotou and meet President Nicos Anastasiades on March 30.