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Cyprus Government’s Economic Policy: A Blueprint for Growth and Stability

Strong Budgetary Outlook for 2026

The President of the Republic, Nikos Christodoulidis, announced positive outcomes from the government’s policy initiatives during an afternoon session of the Cabinet Council held at the Presidential Mansion. The focal point of the meeting was the 2026 state budget, heralded as a symbol of economic strength and forward-looking development.

A Robust and Surplus Budget

At the outset, President Christodoulidis highlighted the importance of maintaining a dynamic economy—a priority among the government’s top five strategic objectives. The newly presented budget is not only surplus but also grounded in stability, offering a blend of social and developmental mandates. This financial blueprint underscores the government’s unwavering commitment to strategic investments and sustainable growth.

Enhanced Social and Developmental Investments

Significant increases are planned in both developmental spending and social policy allocations. Notably, developmental expenditures are set to rise by 4.7% in addition to the 4% increase recorded in the 2025 budget. Social services, which saw a 5.3% boost in the previous year, are slated for a further 6.7% increase. Such measures are indicative of a policy designed to balance fiscal discipline with impactful public spending.

Reduction in Public Debt

One of the key highlights of the session was the projected decline in public debt. The debt-to-GDP ratio is expected to decrease from 73.6% in 2023, when the current administration assumed office, to 52.9% by 2026—placing Cyprus among the low-debt economies within the Eurozone. This significant reduction demonstrates prudent fiscal management and augurs well for long-term economic stability.

Strategic Focus on Education, Health, and Transformation

President Christodoulidis reiterated the government’s prioritization of sectors critical to national development. Investments in education, healthcare, and social welfare are being bolstered alongside initiatives for digital transformation and the green transition. Projections for 2026 include a growth rate of 3.1% and an unemployment rate maintained below 5%, approximately at 4.6%. Such targets reflect a resilient and balanced approach in the face of global uncertainties.

A Commitment to Responsible Governance

Drawing comparisons with economic conditions in major Eurozone countries and acknowledging Cyprus’s unique geopolitical challenges, the President emphasized that these results are a testament to responsible economic policy. The administration’s clear mandate remains: to act in the best interests of the Cypriot people, ensuring that responsible governance prevails without resorting to experimentation.

Looking Ahead

Concluding the address, President Christodoulidis affirmed that the government would persist in delivering results with the same sense of accountability. The approved 2026 budget marks the third fiscal plan under the current administration, underscoring a consistent commitment to transparency, fiscal prudence, and strategic development.

Mercedes-Benz Posts Higher Profit Despite China Slowdown

Mercedes-Benz reported stronger-than-expected second-quarter results, lifting its shares on Tuesday despite mounting pressure from Chinese automakers and a weaker outlook for sales and revenue.

The earnings provided a boost for Europe’s auto sector, where manufacturers continue to grapple with tariffs, softer demand and intensifying competition from Chinese rivals. Volkswagen, Mercedes-Benz and BMW have all accelerated restructuring efforts in response.

Cost Discipline Lifts Quarterly Profit

Mercedes-Benz shares rose as much as 5.9% following the results before trimming gains to trade 3.5% higher by 1118 GMT. The company reaffirmed its profit margin guidance for its core passenger car business after reporting an adjusted return on sales of 4.0% for the second quarter, above market expectations and within its 3% to 5% target range.

“In an environment where some automakers are ringing alarm bells on their competitive positioning, Mercedes delivered a clear and confident message,” Morningstar analyst Rella Suskin said.

Second-quarter operating profit increased 22% to €1.5 billion ($1.7 billion), despite a 3% decline in revenue. Lower administrative and research and development costs, together with strong performances from the financial services and vans divisions, supported earnings, while the results also included a €131 million gain related to the planned sale of leasing subsidiary Athlon.

China Remains The Key Pressure Point

Despite stronger profitability, Mercedes continues to face a challenging market environment. Sales in China fell 30% during the second quarter, prompting the company to abandon earlier expectations for stable car sales and group revenue. It now expects both to decline slightly from a year earlier.

BMW also lowered its outlook in June following a deeper-than-expected slowdown in China, highlighting the pressure facing Germany’s premium carmakers. At the same time, Mercedes said Chinese manufacturers are increasingly expanding into European markets, although Chief Executive Ola Kaellenius said their focus remains on higher-volume segments rather than the premium market.

“But that is not a reason to sit back and be relaxed,” he said.

Manufacturing Shift Continues

Mercedes is also reshaping its manufacturing footprint. The company said its German factories will undergo a more aggressive push toward leaner production, although it declined to provide further details while talks with labour representatives continue. Production is also being expanded in lower-cost Eastern European locations, including Hungary, where the company is increasing capacity at its Kecskemet plant, as well as in Poland.

Chief Financial Officer Harald Wilhelm said the full-year margin for the passenger car division is expected to come in at the lower end of the company’s guidance range, reflecting a higher share of electric vehicle sales in Europe, which remain more expensive to produce and continue to weigh on profitability.

“We must continue to work flat out to reduce costs so that we can remain competitive on the prices of our products,” Kaellenius said.

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