Central Bank Revises Growth Forecast Amid Robust Domestic Demand in Cyprus

Revised Economic Projections and Domestic Demand

The Central Bank of Cyprus has slightly downgraded its 2025 GDP growth forecast to 3.1 per cent from its previous estimate of 3.2 per cent, alongside a marked reduction in projected inflation from 2.1 per cent to 1.5 per cent. These adjustments were made before the recent escalations in the Israel-Iran conflict, meaning any subsequent economic reverberations have not been factored into the current outlook.

Strength in Private Consumption and Investment

Underlying the forecast is a steady rise in domestic demand, powered primarily by increased private consumption due to higher real disposable incomes and a resilient labor market. Large-scale non-residential investments, strategic infrastructure projects supporting digital and green initiatives, and various reforms under the Recovery and Resilience Plan are also expected to bolster consumer spending and overall economic activity.

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Inflation and Sectoral Performance

Inflationary pressures are moderating, as reflected in the drop in the Harmonised Index of Consumer Prices to 1.5 per cent for 2025. This decline is chiefly attributed to easing energy prices and effective monetary policies, although upward pressures are anticipated in the subsequent years due to rising energy and food costs. The role of the technology sector in enhancing net exports and the diversification of financial, professional, and shipping services further underline the economy’s adaptive strengths.

Labor Market Dynamics and Employment Trends

The robust labor market continues to play a key role in supporting the Cypriot economy. With unemployment expected to decline to 4.7 per cent in 2025, a trend corroborated by the European Commission’s Economic Sentiment Surveys, the economy is on course towards near full employment in the coming years, even as slight upward revisions in unemployment rates are noted for 2026 and 2027 due to external uncertainties.

Risks and External Uncertainties

Despite the positive domestic trends, downside risks loom amidst volatile energy prices and uncertain global trade dynamics. The potential escalation of regional conflicts and variability in external demand could temper the economic outlook. Conversely, favorable outcomes from tax reforms, robust wage growth, and a diversified export portfolio stand as key upside factors.

In summary, the central bank’s forecast reflects a cautious yet resilient economic framework for Cyprus, driven by strong private demand and strategic investments, while remaining alert to the challenges posed by global geopolitical tensions and market uncertainties.

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Cyprus Foreclosure Reform Debate Intensifies Amid Rising Non-Performing Loans

by THEFUTURE.TEAM

February 18, 2026

Political Stakes And Foreclosure Regulation

Cypriot political parties are engaging in a high-stakes debate in parliament as they deliberate changes to the legal framework governing foreclosures ahead of the May parliamentary elections. The proposed shifts are aimed at curbing the rapid escalation in the value of non-performing loans, a trend that has sparked significant public and legislative concern. Confidential data from the Central Bank of Cyprus indicates that the nation has not yet moved away from its longstanding issues related to so-called “red loans.”

Non-Performing Loans: A Mounting Financial Challenge

Recent figures show that the value of distressed loans has continued to rise, surpassing €20 billion following transfers involving banks and credit recovery companies. This level exceeds the approximately €15 billion recorded during the economic crisis period. Central Bank data indicates that after loan sales, credit recovery firms now manage portfolios totaling €19.7 billion, of which €18.5 billion are classified as non-performing. About 87% of these loans are considered terminated, while the firms acquired 141,478 loans for €3.2 billion, roughly 80% below their original value.

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Credit Recovery Companies: Overshooting Investment Returns

By June, credit recovery companies had recovered €5.7 billion through a combination of cash repayments, judicial asset auctions and property-for-debt exchanges. Cash repayments accounted for €3.6 billion, judicial recoveries contributed €619 million, and property swaps added €1.5 billion. These recoveries exceeded the original purchase cost of many loan portfolios while overall balances continued to increase due to accrued interest, a development that remains a concern for policymakers.

Bank Portfolios And The Impact On Financial Stability

Data from the State Guarantee Fund for Deposits and Loans shows that 77,561 loans valued at €7.5 billion were transferred, leaving a remaining balance of €5.7 billion by June 2025, of which €5 billion are non-performing. Within the banking sector, non-performing loans totaled €1.45 billion across 24,736 accounts as of last June. Since December 2024, these figures have improved by approximately €86 million due to repayments and asset recoveries. The reduction in problematic loans has lowered bank exposure compared with levels recorded during the 2013 crisis.

Legislative Proposals And Government Considerations

Political leaders argue that adjustments to foreclosure procedures can be introduced without undermining banking stability. Parliament’s Economic Committee is scheduled to begin discussions on March 9, with an estimated 20 to 30 legislative proposals currently pending from multiple parties. While the Ministry of Finance has not announced immediate legislative action, officials are evaluating the potential reintroduction of elements of the Rent-Versus-Rate plan for vulnerable borrowers, subject to fiscal impact assessments.

Advocacy From AKEL And Environmental Groups

Proposals supported by the AKEL party and several civil organizations focus on strengthening legal protections for borrowers. Among the suggested measures is restoring the right to seek judicial relief to delay foreclosures in cases involving disputed charges or alleged abusive contract clauses. AKEL representative Aristos Damianou criticized the pace of foreclosure proceedings and warned of risks to primary residences and small businesses.

Proposals Targeting Guarantors And Foreclosure Processes

The Democratic Rally party has introduced a proposal aimed at limiting guarantor liability during foreclosure procedures. Under the draft measure, if a property is auctioned or repossessed, the guarantor’s responsibility would be capped at the original loan amount adjusted by recovered sums. The proposal also requires that enforcement actions against guarantors be suspended until a court ruling is issued if the borrower formally disputes the debt.

Revisions Proposed By The Democratic Party of Cyprus

The Democratic Party is also preparing new legislative measures to be introduced on Thursday. Party leader Mario Karogian outlined plans to suspend the foreclosures of primary residences valued up to €350,000 until the end of the year, allowing time to address legislative gaps. Additional proposals include broadening the powers of the Financial Ombudsperson to make binding decisions on disputes up to €50,000, enforcing the Central Bank’s code of conduct, and ensuring strict adherence to refinancing guidelines for first residences.

Outlook And Strategic Implications

The range of proposals reflects an ongoing effort to balance financial system stability with stronger consumer protections. Decisions made in the coming months are expected to shape the regulatory environment for foreclosures and influence broader confidence in Cyprus’ financial sector and economic outlook.

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