cyprus economy — The Cyprus economy is set to grow by 3.5% in 2025, according to the latest forecasts from the Central Bank of Cyprus (CBC). This growth is primarily driven by robust performance in technology, tourism, and the services sectors.
- The shipping sector is expected to continue its positive contribution to the economy, further bolstered by the anticipated growth in tourism.
Cyprus economy: GDP Growth Forecasts
The CBC released its macroeconomic forecasts on Monday, indicating a slight revision from the 3.9% growth rate anticipated for 2024. Following 2025, GDP growth is expected to average around 3% per year from 2026 to 2028.
Factors Supporting Growth
The central bank attributed the projected GDP growth to an expected increase in domestic demand. This rise is expected to be fuelled by higher private consumption, supported by an increase in real disposable income among households and a resilient labour market.
“Domestic demand is expected to be supported by higher private consumption due to rising real disposable income of households and the continued resilience of the labour market,” the bank stated in its report.
Investment Contributions
In addition to private consumption, significant contributions to domestic demand are anticipated from large ongoing non-residential private investments. These include infrastructure projects aligned with digital and green growth, as well as reform-related initiatives under the Recovery and Resilience Plan. Residential investment is also projected to add to growth, albeit to a lesser extent.
The CBC expressed confidence that despite global uncertainties, particularly concerning US trade policies, Cyprus’s limited trade in goods with the US would shield domestic investments and private consumption from major negative impacts.
Sectoral Contributions to Growth
The technology sector is expected to play a significant role in net exports, particularly through increased exports of related services linked to intellectual property. Moreover, the financial and professional services sectors are projected to experience growth due to a diversification of export markets.
Tourism is also anticipated to make a positive contribution, with a notable increase in arrivals from the United Kingdom, Israel, and EU countries. The CBC highlighted the ongoing diversification of the tourism product, targeting markets with higher per capita spending as a critical factor for the sector’s growth.
The shipping sector is expected to continue its positive contribution to the economy, further bolstered by the anticipated growth in tourism.
Unemployment and Inflation Trends
As for employment, the CBC forecasts a decline in unemployment to 4.5% of the labour force in 2025, down from 4.9% in 2024. This positive trend is attributed to better-than-expected outcomes in employment rates during the third quarter.
The central bank noted that “this is consistent with the positive trend recorded in the European Commission’s Business and Consumer Surveys regarding employment expectations over the next three months.” Unemployment is expected to stabilise around 4.5% from 2026 to 2028, indicating conditions of full employment.
Inflation is projected to fall sharply to 0.8% in 2025, down from 2.3% in 2024. The CBC explained that this decline is primarily driven by deflationary pressures in non-energy industrial goods and energy prices, alongside slower food price growth.
Outlook for the Coming Years
Looking ahead, inflation is expected to rise again in subsequent years, reaching 1.7% in 2026, 2.2% in 2027, and 1.9% in 2028, largely due to anticipated increases in food prices and the gradual fading of deflationary pressures.
The CBC also noted that core inflation, which excludes energy and food, is likely to average around 1.9% over the period from 2025 to 2028, influenced by easing deflationary pressures and a gradual slowdown in services inflation.
Risks to Economic Growth
The central bank acknowledged that while risks to GDP growth from 2026 to 2028 are slightly tilted to the downside, they have been mitigated by a recent EU–US trade agreement which has so far shown no negative effects. Upside risks include possible positive impacts from tax reforms on private consumption.
For inflation, the risks are assessed as slightly skewed to the upside, primarily due to stronger wage increases and a wider application of cost-of-living allowances. Conversely, there are potential downside risks linked to lower energy prices stemming from changes in global trade dynamics.
A Positive Economic Outlook
The CBC’s forecasts reflect an optimistic outlook for the Cypriot economy, driven by significant contributions from various sectors and supported by a resilient labour market. As the nation navigates the complexities of the global economy, the focus will remain on sustaining growth and improving living standards for its citizens.
