cyprus economic — cyprus economic — The economic sentiment in Cyprus has shown signs of improvement, though experts caution that growth outlook is weakening. According to the Economics Research Centre of the University of Cyprus (CypERC), the Economic Sentiment Indicator increased by 2.1 points in April 2026 compared to March, largely due to a less negative outlook in the services sector.
Despite this upward trend, the indicator remains below the historical average of 100 points, indicating underlying economic challenges. The boost in confidence within the services sector was primarily linked to revised turnover expectations and a slight improvement in recent turnover performance. However, businesses in hospitality still face significant difficulties, reflecting ongoing sector-specific issues.
Conversely, the retail trade sector saw a notable decline in confidence, with firms reporting adverse views regarding both recent and anticipated sales. The construction sector also experienced a slight dip in confidence, as firms expressed concerns about current order book levels. The industry sector faced a more substantial decline, driven by weaker order books and diminished production expectations.
Consumer confidence continued its downward trajectory for the fourth month in a row, with households increasingly pessimistic about their financial situations and showing reluctance to make major purchases. The Economic Uncertainty Indicator, while declining slightly in April, remains at high levels, highlighting persistent economic apprehension.
Interestingly, business uncertainty decreased in retail and services, yet it remains elevated, especially among hospitality and financial services firms. In contrast, uncertainty increased in the construction and industry sectors, affecting consumers, particularly those from low-income households.
Looking ahead, CypERC’s outlook report warns that Cyprus might face a slowdown in economic growth in the coming years, shaped by external pressures and domestic hurdles. Real GDP growth is projected to moderate from 3.8% in 2025 to 2.9% in 2026, and is expected to improve slightly to 3.1% in 2027. These projections represent downward revisions from earlier forecasts, primarily due to economic challenges linked to escalating geopolitical tensions in the Middle East.
Monthly data from March indicated a softening in demand, particularly in external demand for services, alongside rising uncertainty and inflationary pressures. Despite these difficulties, Cyprus’s economy demonstrated solid momentum in 2025, achieving a GDP growth of 3.8%, which is just below the 3.9% recorded in 2024. The last quarter of 2025 was particularly strong, with growth accelerating to 4.5% year-on-year.
Across various sectors, gross value added saw increases, with construction showing notable improvements. However, consumption growth decelerated towards the end of 2025, partly due to weaker private consumption, although government expenditure rose. Investment experienced a decline year-on-year in the fourth quarter, influenced by reductions in machinery and equipment, despite a significant rise in construction investment.
Data from early 2026 points to a further softening in demand, with decreased activity in retail trade, card transactions, vehicle registrations, and property sales. Tourist arrivals also fell sharply in March compared to the same period last year, while unemployment registered a slight increase for the first time in three years.
Inflation, as reflected in the Consumer Price Index, rose to 0.6% in the first quarter of 2026, contrasting with a negative 0.5% in the previous quarter. This increase was largely driven by higher prices for local agricultural goods and petroleum products, alongside persistent pressure in certain service categories, such as home repairs and restaurants.
Survey data highlighted a decline in confidence and rising uncertainty, with the sentiment indicator dipping below its long-term average in March for the first time since 2022. Employment expectations weakened significantly, particularly within the services sector, while price expectations increased.
Despite these challenges, fiscal performance remains strong, with a budget surplus recorded in the first two months of 2026, albeit smaller than the previous year. Both government revenues and expenditures rose, contributing to a declining public debt and bolstering investor confidence and economic resilience.
As we look to the future, inflation is anticipated to rise sharply, projected to increase from 0.1% in 2025 to 2.7% in 2026 before easing to 1.8% in 2027. These expectations reflect upward revisions owing to higher oil prices driven by geopolitical tensions, compounded by rising domestic food prices. Consumer and business price expectations have also risen, signalling a widespread increase in inflationary dynamics.
Economic prospects remain uncertain, with significant risks stemming from prolonged geopolitical tensions, declining external demand, and potential disruptions to tourism. However, there are also upside risks from resilient domestic demand, ongoing investment initiatives, and supportive fiscal measures that could mitigate some of these challenges.
CypERC concluded that Cyprus is entering a period marked by slower growth, rising inflation, and increased uncertainty, with external factors playing a pivotal role in shaping the overall economic landscape.
