Real GDP growth in Cyprus is expected to moderate from 3.8% in 2025 to 2.7% in 2026 and to strengthen to 3.1% in 2027, according to the Economic Outlook issued on Wednesday by the Economic Research Centre of the University of Cyprus. Moreover, inflation is revised upwards, expected to reach 3% this year.
Relative to April's Economic Outlook, ERC's growth forecast for 2026 has been revised down by 0.2 percentage points, while the forecast for 2027 has remained unchanged.
Rising price pressures
According to ERC, the downward revision was driven by the slowdown in GDP growth during the first quarter of 2026 in both Cyprus and the euro area, as well as by negative developments in leading indicators during the period April–June, primarily related to the ongoing conflict in the Middle East.
"These developments point to rising price pressures, easing labour demand in certain sectors, losses in business and consumer confidence, increased economic uncertainty, and tighter financing conditions," ERC notes.
Nonetheless, it adds, growth in Cyprus is expected to remain robust on the back of still low unemployment, sound public finances and the recent expansion in new housing loans.
Inflation
On the other hand, inflation, as measured by the Consumer Price Index (CPI), is forecast to accelerate markedly, rising from 0.1% in 2025 to 3% in 2026, before easing to 2.1% in 2027.
Compared with the April outlook, the inflation forecasts for both 2026 and 2027 have been revised up by 0.3 percentage points.
According to ERC, the upward revision to the inflation outlook mainly reflected the sharp increases in international oil prices recorded in April and May 2026 relative to the same months of 2025, as well as the notable pickup in domestic inflation during the second quarter.
As it notes, the ongoing tensions in the Middle East have reignited upward pressure on international commodity prices and increased uncertainty regarding growth prospects and the inflation outlook. "As the effects of the conflict have continued to propagate through the Cypriot economy, resulting in weaker external demand, stronger inflationary pressures and tighter financing conditions, risks of lower-than-projected growth, as well as higher and/or more persistent inflation than currently forecast, predominate," ERC concludes.
Source: CNA
