Economic growth in Cyprus is expected to fall below 3% in 2026, according to updated forecasts released on Monday by the University of Cyprus Economics Research Centre, with inflation now projected to rise more sharply than previously estimated.
Real GDP growth is forecast to slow from 3.8% in 2025 to 2.9% in 2026, before edging up slightly to 3.1% in 2027. Compared with the Centre’s January outlook, projections for both 2026 and 2027 have been revised downwards by 0.6 and 0.3 percentage points respectively.
The downward revision reflects mounting economic headwinds, largely linked to escalating tensions in the Middle East. These pressures are already visible in leading indicators, pointing to weakening demand, particularly in external services, rising uncertainty among businesses and consumers, and renewed upward pressure on prices.
Recent monthly data, especially for March, suggest a softening in overall demand alongside deteriorating sentiment, factors that are weighing on the broader economic outlook.
However, the report notes that strong growth in the final quarter of 2025, solid public finances and low unemployment are expected to cushion the impact of recent shocks, including regional conflict and the outbreak of foot-and-mouth disease.
Inflation expected to accelerate
Inflation, based on the Consumer Price Index, is projected to increase significantly from 0.1% in 2025 to 2.7% in 2026, before easing to 1.8% in 2027. This marks an upward revision of 1.9 percentage points for 2026 and 0.4 points for 2027 compared with January estimates.
The sharper inflation outlook is mainly attributed to rising international oil prices linked to geopolitical tensions, as well as strong increases in domestic food prices during the first quarter of 2026.
The Centre warns that the current projections are subject to a high degree of uncertainty, as geopolitical risks have intensified and economic volatility has increased. The balance of risks remains tilted towards weaker growth and higher inflation.