Economic expansion in Cyprus slows down, registering a growth rate of 2.3% in June.
The Cypriot economy is projected to maintain a robust but cautious growth trajectory over the medium term, with GDP growth forecasted at around 3% annually from 2025 to 2027. This positive outlook is primarily driven by strong private consumption and domestic demand.
For the year 2025, Cyprus anticipates a GDP growth of approximately 3.1%, slightly lower than the 3.4% recorded in 2024. This forecast is supported by a steady expansion of about 3% in 2026 and 2027.
However, recent geopolitical tensions in the Middle East, particularly the conflicts between Israel and Iran, have introduced additional uncertainty. The Central Bank of Cyprus has clarified that their growth projections were formulated before these conflicts occurred, and the potential economic impacts related to these tensions are not yet incorporated into forecasts.
Given Cyprus's geographical proximity and its ties to energy markets, there could be indirect effects on inflation and external demand. Inflation in Cyprus is currently projected at a moderate 1.5% for 2025, revised downward from earlier estimates, reflecting easing energy price pressures.
The Cypriot economy also benefits from high employment rates and strong fiscal performance. Government surpluses have been increasing, providing a buffer against external shocks.
Despite these positive indicators, the medium-term outlook for the Cypriot economy is subject to risks from global geopolitical uncertainties, particularly in energy markets linked to Middle East tensions. These risks could affect external demand and trade conditions.
However, strong domestic demand, ongoing tax reforms, and wage growth provide supportive factors for continued economic expansion. Retail trade volume has increased, providing a positive contribution, and increased real estate sales have also contributed positively.
It's worth noting that the slowdown in the rate of expansion is mainly attributed to the weakening of the Economic Sentiment Indicator (ESI) in both Cyprus and the Eurozone. There has been a reduction in temperature-adjusted electricity production.
In summary, the Cypriot economy's medium-term outlook is positive but subject to risks from global geopolitical uncertainties. This balanced outlook highlights strong internal economic fundamentals in Cyprus, tempered by external geopolitical risks that warrant careful monitoring as the situation in the Middle East evolves.
- The tourism sector in Cyprus may witness significant growth, given the robust economy and positive business environment, attracting foreign investors.
- The ongoing development of real estate in Cyprus, fueled by increased sales and strong domestic demand, could provide further boosts to the economy.
- The Cypriot economy's finance and business sectors might benefit from the continued growth trajectory, creating more employment opportunities and fostering further investment.
- In light of the positive economic outlook, it's prudent for the Cypriot government to focus on continuing financial management reforms, ensuring a stable economy that entices both domestic and international businesses.
