he Commission’s Spring Forecasts indicate that growth will continue to be driven mainly by private consumption and services exports, even as tourism faces pressure from geopolitical instability. The report notes that Cyprus recorded strong growth of 3.8% in 2025, supported by domestic demand, ICT sector expansion and rising tourist arrivals.
Private consumption is expected to remain the main growth driver, though at a slower pace due to rising imported inflation, which is weighing on household incomes. A slowdown in foreign labour inflows is also expected to dampen demand, while domestic tourism may partly offset weaker international arrivals.
Investment is projected to slow in the short term as higher costs delay decisions, before recovering during 2026 with continued support from the Recovery and Resilience Facility. Services exports are expected to remain resilient, particularly in ICT, financial and business sectors, which are less exposed to regional tensions.
Tourism, however, is described as highly sensitive to geopolitical developments, while potential disruptions in global trade could also affect shipping.
Inflation is forecast to rise to 3.6% in 2026, driven mainly by energy prices, before easing to 2.2% in 2027. At the same time, Cyprus continues to record strong fiscal surpluses, although these are expected to narrow as tax reforms and energy support measures weigh on public finances.
Public debt has fallen sharply, dropping below 60% of GDP for the first time since 2009, with further declines expected over the coming years.
Labour market conditions are projected to remain favourable, with unemployment set to fall to 4.2%, the lowest level in a decade, while wage growth is expected to strengthen from 2027.
Source: CNA
