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Cyprus Achieves Largest Debt Reduction in Eurozone

by THEFUTURE.TEAM

Cyprus made significant strides in reducing its government debt, with the debt-to-GDP ratio falling to 70.5% by the end of the second quarter of 2024, according to Eurostat. This represents the largest decrease in the eurozone, with a 2.1% drop from Q1 2024 and a notable 10% reduction from Q2 2023.

In contrast, both the eurozone and the EU saw slight increases in their debt-to-GDP ratios. The eurozone’s ratio increased to 88.1% (up from 87.8% in Q1 2024), and the EU’s rose to 81.5% (up from 81.3%).

Despite Cyprus’ success, some countries continue to struggle with high debt levels. Greece and Italy recorded the highest ratios at 163.6% and 137.0%, respectively. Meanwhile, Bulgaria and Estonia maintained the lowest ratios at 22.1% and 23.8%.

The eurozone’s government debt is largely composed of debt securities, accounting for 84% of the total, while intergovernmental lending made up 1.5% of GDP.

Cyprus’ impressive debt reduction stands in contrast to the increases seen in countries such as Finland and Austria, demonstrating the country’s effective fiscal management amid global economic pressures.

Cyprus Economic Outlook Turns Positive As Domestic Activity Supports Growth

by THEFUTURE.TEAM

Cyprus’ short-term economic outlook returned to positive territory in August, despite continued external pressures, according to the Composite Leading Economic Index (CCLEI) from the University of Cyprus Economics Research Centre (CypERC).

The CCLEI rose 0.02% year over year in August 2026, based on revised data, after several months of decline. The modest increase reflected stronger readings in several domestic indicators, including property sales contracts, credit card spending, retail sales volumes and temperature-adjusted electricity production.

External Pressures Continue To Weigh

Higher Brent crude prices and lower tourist arrivals compared with a year earlier limited the improvement in the index. The weighted Economic Sentiment Indicator also weakened from August 2025, adding to the external pressures facing the economy.

CypERC said the latest reading pointed to a gradual improvement in the short-term outlook while noting Cyprus remains exposed to international economic and geopolitical developments.

CBC Forecasts Slower Growth In 2026

The latest CCLEI reading comes as the Central Bank of Cyprus (CBC) expects economic growth to slow this year before recovering.

GDP is forecast to grow 2.9% in 2026, compared with 3.8% in 2025, before accelerating to 3.1% in both 2027 and 2028. The CBC nevertheless raised its June forecasts by 0.4 percentage points for 2026 and 0.2 points for 2027, citing stronger-than-expected second-quarter activity, improved tourism performance and robust residential investment.

Domestic Demand Remains A Key Support

Private consumption is expected to remain positive as households benefit from higher real disposable incomes, although inflationary pressures will persist. The labor market and major residential and non-residential projects are also expected to support activity.

Long completion timelines and expectations that geopolitical disruption will be temporary make cancellations of major investment projects unlikely, according to the CBC.

Net Exports Expected To Weigh On Growth

Net exports are forecast to make a negative contribution to growth in 2026, largely because tourism revenue declined in the first half of the year amid the Middle East conflict. Higher imports are also expected as domestic demand remains strong and imported services support export activity.

A stronger contribution from net exports is projected for 2027 and 2028 as tourism recovers.

Outlook Improves But Remains Exposed To External Shocks

The CCLEI and CBC forecasts point to continued support from domestic demand and investment alongside exposure to energy prices, tourism flows and geopolitical developments.

August’s marginal increase in the leading index therefore signals a modest improvement in the short-term outlook, while the CBC expects slower growth in 2026 followed by a recovery in the next two years.

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