Cyprus’ economy continues to grow, but its external accounts are coming under increasing pressure. Revised figures show that the current account deficit was significantly wider in 2025 than previously estimated, with a further deterioration in the first half of 2026, according to Eurobank Research.
The latest data also raise the possibility that the 2026 deficit will exceed the IMF’s October forecast, highlighting the challenge of sustaining growth while strengthening the income Cyprus generates abroad.
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Revisions Reveal A Wider Deficit
The Central Bank of Cyprus revised the 2025 current account deficit to 8.8% of GDP, up from 6.4% previously. The 2024 figure, meanwhile, was revised down from 8.2% to 5.5%.
The revised 2025 deficit reached €3.21 billion, €870 million above the earlier estimate. The largest change came from the income balance, where the deficit increased by €1.42 billion, mainly due to net investment income. The goods deficit rose by €201 million and net current transfers abroad by €108 million.
An €855 million upward revision to the services surplus, largely reflecting higher estimated net earnings from ICT services, partly offset the deterioration. Overall, however, the revised figures show that Cyprus’ external position weakened in 2025.
Deficit Widens Further In 2026
The current account deficit reached €2.42 billion in the first half of 2026, equivalent to 12.8% of GDP, compared with 10.1% a year earlier. It widened by €635 million, with almost all of the increase recorded in the second quarter.
The goods trade deficit increased by €441 million, while the services surplus declined by €432 million. Although services exports continued to grow, payments for imported services rose faster.
Several major service sectors contributed to the decline. The ICT surplus fell by €212 million, while the surpluses from travel and financial services dropped by €183 million and €230 million, respectively. Higher net earnings from licensing, royalties and other business services, alongside a €333 million improvement in the income balance, provided some support. A €94 million deterioration in secondary income partly offset those gains.
Imports And Tourism Add To The Pressure
Strong household consumption and business investment have contributed to higher imports. Transport equipment and parts accounted for around 77% of the increase in goods imports during the first half of 2026.
However, imported equipment can also support business expansion and future productive capacity. The longer-term question is whether this investment translates into higher domestic output and income.
Tourism offered less support to the external balance. Revenues fell 6.2% year on year between January and August, reaching €2.32 billion. Receipts increased by 4.6% in July before declining 3.4% in August, mainly due to fewer visitors, while average spending per visitor remained broadly unchanged.
Provisional figures also showed a further year-on-year widening in the goods trade deficit in July and August, pointing to pressure across several sources of external earnings.
IMF Forecast Faces Upside Risk
The IMF’s October 2026 World Economic Outlook projected a current account deficit of 7.7% of GDP for Cyprus in 2026. That forecast was based on information available before the Central Bank’s latest revisions.
Eurobank Research said the updated data create significant upside risk to the projection, meaning the final deficit could be larger than expected.
The scale of the deficit is only part of the picture. International businesses contribute to exports and employment, while profits earned by foreign investors affect the income balance. Household consumption and business investment also generate demand for imported goods and services. How the deficit is financed and whether investment produces future income are therefore equally important.
Strengthening Cyprus’ External Earnings
Eurobank Research argues that Cyprus needs to broaden its sources of income from abroad by helping businesses develop skills, create new products and services, and reach international markets. This would build on the country’s expanding services economy.
Strengthening local supply chains could also allow Cypriot companies to provide more goods and services to international businesses operating on the island. Meanwhile, investment in renewable energy and energy efficiency could reduce dependence on imported fuels.
The report also highlights financial education, household saving and better access to finance for businesses. While these measures will not eliminate external imbalances immediately, stronger export capacity, deeper local supply chains and lower energy-import dependence could gradually narrow the deficit and support more sustainable economic growth.
