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Cyprus Economy: Strong Growth Ahead Despite Structural Challenges

by THEFUTURE.TEAM

January 17, 2025

Cyprus is poised to sustain strong economic growth in the coming years, according to a recent report from the Canadian rating agency Morningstar DBRS. The agency also predicts a steady decline in unemployment, which is expected to bolster the nation’s fiscal performance.

Despite these positive projections, the report highlights persistent hurdles facing the Cypriot economy. As a small, service-driven market, Cyprus remains highly susceptible to external shocks. Additionally, while strides have been made to reduce non-performing loans (NPLs), their levels still exceed the Eurozone average. Challenges in labour market productivity further restrict the nation’s economic potential.

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On a brighter note, progress in addressing NPLs has been significant. Data from the Central Bank of Cyprus show that NPL ratios in approved credit institutions dropped to 6.8% in August 2024, a dramatic reduction from 43.7% at the end of 2017. This improvement represents an €18.9 billion decrease in absolute terms.

Morningstar DBRS anticipates this downward trajectory to persist but acknowledges that eliminating the remaining NPLs will require time. By mid-2024, credit acquisition companies managed exposures of approximately €21 billion, with 94% classified as non-performing.

The report also notes delays faced by KEDIPES, the state-owned asset management company. Challenges such as foreclosure moratoriums, the COVID-19 pandemic, and geopolitical tensions have pushed the company’s operational deadline to 2030.

Housing prices, meanwhile, have shown sustained growth. As of Q2 2024, property prices in Cyprus rose by an annual rate of 8.0%, with house prices increasing by 6.2% and apartment prices surging by 12.0%. Most of the real estate collateral tied to NPLs consists of residential properties, with Nicosia and Limassol identified as the most stable markets on the island.

While structural vulnerabilities persist, Morningstar DBRS’s analysis underscores Cyprus’ resilience and ability to adapt. Continued efforts to address NPLs, coupled with a robust housing market and improved employment metrics, suggest the nation is on a steady path toward economic stability and growth.

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Eurostat’s February 2026 Retail Report: Divergent Trends Across Europe

Overview Of European Retail Activity

Eurostat data show a slight decline in retail trade across the euro area and the European Union in February 2026, with uneven performance across member states. While overall volumes decreased, several markets, including Cyprus and Malta, recorded growth.

Monthly Performance Insights

Seasonally adjusted data indicate that retail trade volume fell by 0.2% in the euro area and by 0.3% in the EU compared with January 2026. January figures had remained broadly stable, suggesting that consumer activity slowed slightly at the start of the year rather than reversing sharply.

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Sector-Specific Breakdown

Category-level data show mixed performance across segments. Food, drinks, and tobacco volumes declined by 0.5% in the euro area. Non-food products excluding automotive fuel remained stable, indicating limited movement in discretionary spending. Automotive fuel sales increased by 0.7% in the euro area and 1.0% in the EU, partially offsetting declines in other categories.

Divergent National Trends

Performance varied across member states. Cyprus recorded a 0.8% increase in retail trade, matching Portugal. Malta reported the strongest monthly growth at 2.0%, followed by Bulgaria at 1.0%. At the same time, declines were recorded in Lithuania at 2.5%, Poland at 2.4%, and Slovenia at 2.0%, reflecting differences in consumer demand across markets.

Annual Trends And Market Resilience

Year-over-year data show moderate growth despite monthly declines. Retail sales increased by 1.7% in both the euro area and the EU compared with February 2025. Food, drinks, and tobacco recorded annual growth of 1.0% in the euro area. Non-food products rose by 2.3%, while automotive fuel sales increased by 1.4% in the euro area and 1.6% in the EU.

Conclusion

February data point to slower short-term retail activity alongside continued annual growth. Differences across sectors and countries suggest that consumer demand remains uneven across the region, with some markets continuing to expand while others contract.