New projections for the Cyprus economy indicate a growth rate of 3.5% in 2025, slightly down from 3.9% in 2024, with expectations of stabilization throughout 2026. These figures, revised upward by 0.3 and 0.2 percentage points respectively compared to the July outlook, reflect a marked improvement in both domestic and international economic conditions.
Positive Developments And Improved Outlook
Domestically, a marked easing of inflation, strengthened economic confidence, and increased new loans driven by lower interest rates are contributing robustly to economic dynamics. Internationally, reduced trade uncertainty and decreased market volatility in the third quarter of 2025 further bolster growth prospects compared to the previous quarter.
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Risks To Lower Growth
Despite these optimistic projections, significant downward risks persist. The external environment remains a concern as key trading partners may experience slower-than-expected growth amid subdued confidence indicators. Additionally, upward pressures on public spending, extreme weather events linked to climate change, and escalating geopolitical tensions could potentially impede economic momentum in Cyprus.
Inflation: Decline In 2025, Recovery In 2026
According to the Consumer Price Index, inflation is projected to decline to 0.3% in 2025, down from 1.8% in 2024, before rebounding to 2.0% in 2026. The downward revision for 2025, decreased by 0.7 percentage points compared to the July forecast, is attributed to lower inflation rates in the third quarter and a drop in international oil prices. In contrast, the upward revision for 2026 (+0.5 percentage points) is tied to the country’s strong economic performance during the initial three quarters of 2025, as reflected in quarterly and monthly data.
