domestic demand — Domestic demand is set to be a key driver of economic growth in Cyprus, according to the latest report from the Central Bank of Cyprus (CBC). The central bank has projected a GDP growth rate of 3.5 per cent for 2025, a slight decline from 3.9 per cent in 2024, yet it remains confident about the country’s robust economic foundations.
CBC governor Christodoulos Patsalides emphasised that the Cypriot economy is demonstrating flexibility and adaptability in the face of external pressures. The CBC’s December economic bulletin highlights a consistent trajectory of growth, with expectations of approximately 3 per cent annual growth from 2026 to 2028.
Domestic demand: Positive Trends in Public Finances
In terms of public finances, the CBC reported a significant drop in the public debt-to-GDP ratio, which fell to 56.2 per cent in November 2025, down from 65.8 per cent in November 2024. This improvement is attributed to robust economic growth and a prudent fiscal policy, with a fiscal surplus reaching 3.2 per cent of GDP during the first eleven months of 2025.
Employment and Inflation Outlook
Unemployment is projected to decline to 4.5 per cent during 2025 to 2028, compared with 4.9 per cent in 2024, bolstered by steady GDP growth. Core inflation is anticipated to average around 1.9 per cent during the same period, a decrease from 2.6 per cent in 2024. The CBC noted that inflation based on the Harmonised Index of Consumer Prices is expected to fall to 0.8 per cent in 2025, down from 2.3 per cent the previous year.
Revisions in Economic Forecasts
The CBC’s forecasts have seen a minor downward revision of 0.2 percentage points for GDP growth in 2025, reflecting the better-than-expected performance in sectors such as technology, trade, and tourism during the third quarter of 2025. The outlook for 2026 to 2027 remains stable, with no anticipated changes.
Banking Sector Resilience
Patsalides also highlighted that the Cypriot banking system has matured significantly, providing a solid support system for the broader economic dynamic. Following a challenging period, the domestic banking sector has strengthened its balance sheets and improved risk management practices, ensuring resilience amid ongoing international challenges.
Encouraging Economic Indicators
The CBC’s report indicates a healthy increase in net lending to the private sector, with lending reaching historical highs between January and October 2025. The easing of European Central Bank monetary policy has contributed to lower borrowing rates in Cyprus, which are now aligning more closely with the euro area median.
Despite ongoing geopolitical tensions, the Central Bank maintains a positive outlook on the Cypriot economy. It underscores the importance of prudent economic policy and investments in sectors that deliver long-term value, ensuring the economy’s continued resilience and adaptability.
