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Cyprus Economic Growth Outlook: 3.5% Expansion in 2025 With Steady Development in 2026

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.

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.

EU Moderates Emissions While Sustaining Economic Momentum

The European Union witnessed a modest decline in greenhouse gas emissions in the second quarter of 2025, as reported by Eurostat. Emissions across the EU registered at 772 million tonnes of CO₂-equivalents, marking a 0.4 percent reduction from 775 million tonnes in the same period of 2024. Concurrently, the EU’s gross domestic product rose by 1.3 percent, reinforcing the ongoing decoupling between economic growth and environmental impact.

Sector-By-Sector Performance

Within the broader statistics on emissions by economic activity, the energy sector—specifically electricity, gas, steam, and air conditioning supply—experienced the most significant drop, declining by 2.9 percent. In comparison, the manufacturing sector and transportation and storage both achieved a 0.4 percent reduction. However, household emissions bucked the trend, increasing by 1.0 percent over the same period.

National Highlights And Notable Exceptions

Among EU member states, 12 reported a reduction in emissions, while 14 saw increases, and Estonia’s figures remained static. Notably, Slovenia, the Netherlands, and Finland recorded the most pronounced declines at 8.6 percent, 5.9 percent, and 4.2 percent respectively. Of the 12 countries reducing emissions, three—Finland, Germany, and Luxembourg—also experienced a contraction in GDP growth.

Dual Achievement: Environmental And Economic Goals

In an encouraging development, nine member states, including Cyprus, managed to lower their emissions while maintaining economic expansion. This dual achievement—reducing environmental impact while fostering economic activity—is a trend that has increasingly influenced EU climate policies. Other nations that successfully balanced these outcomes include Austria, Denmark, France, Italy, the Netherlands, Romania, Slovenia, and Sweden.

Conclusion

As the EU continues to navigate its climate commitments, these quarterly insights underscore a gradual yet significant shift toward balancing emissions reductions with robust economic growth. The evolving landscape highlights the critical need for sustainable strategies that not only mitigate environmental risks but also invigorate economic resilience.

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