Improved Service Sentiment Amid Persistent Economic Challenges

University of Cyprus Economics Research Centre (CypERC) reported an increase in economic sentiment in April 2026, with the Economic Sentiment Indicator rising by 2.1 points from March. The improvement reflects fewer negative assessments among services sector businesses, while overall growth expectations remain affected by higher uncertainty.

Sectoral Developments: Services, Retail, And Construction

In the services sector, including hospitality, businesses reported some improvement in turnover expectations and recent performance. At the same time, confidence levels remain below those of earlier periods. By contrast, retail trade showed weaker conditions, with firms reporting lower expectations for current and future sales. Construction activity also softened, as order book levels declined and production expectations weakened.

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Rising Consumer Concerns And Economic Uncertainty

Consumer sentiment declined for a fourth consecutive month, with households reporting weaker expectations for their financial situation and reduced plans for major purchases. Although the Economic Uncertainty Indicator decreased in April, uncertainty remains elevated. Business uncertainty eased in retail and services but stayed higher in hospitality and financial services, while construction, industry, and lower-income households reported increased pressure.

Outlook: Slowing Growth Amid External Pressures

CypERC projections indicate slower economic growth in the coming years. Real GDP growth is expected to decrease from 3.8% in 2025 to 2.9% in 2026, followed by a partial increase to 3.1% in 2027. These revisions, down by 0.6 and 0.3 percentage points respectively, reflect external factors including geopolitical tensions in the Middle East, weaker external demand, and higher price pressures.

Fiscal Strength And Market Resilience

Earlier economic performance provides some support to the outlook. Growth in the fourth quarter of 2025, combined with public finances and low unemployment, continues to influence overall conditions. A budget surplus recorded in early 2026 and stable financial sector indicators, including deposit levels and non-performing loan ratios, contribute to current economic stability.

Inflationary Trends And Future Risks

Inflation is projected to increase from 0.1% in 2025 to 2.7% in 2026, before easing to 1.8% in 2027. The increase is linked to higher oil prices and rising domestic food costs. Future developments will depend on external demand, geopolitical conditions, and domestic economic activity.

Conclusion

The data indicate mixed developments across sectors, with services showing improvement while retail, construction, and consumer sentiment remain under pressure. Economic performance in the coming period will depend on the balance between external risks and domestic conditions.