The Center for Economic Studies at the University of Cyprus forecasts a slowdown in the Cypriot economy by 2026, with inflation on an upward trajectory amid intensifying geopolitical tensions in the Middle East.
Revised Growth Forecasts
Updated estimates show that growth projections for 2026 have been revised down by 0.6 percentage points, with a further 0.3 percentage point reduction for 2027 compared with January forecasts. These revisions follow signals of weaker demand, particularly in externally oriented service sectors, which remain sensitive to international conditions.
Follow THE FUTURE on LinkedIn, Facebook, Instagram, X and Telegram
Geopolitical Pressures And Domestic Resilience
Pressure on the outlook is largely linked to developments in the Middle East, which continue to affect economic activity and sentiment. Data from recent months, including March, point to slower demand, increased uncertainty among businesses and consumers, and rising price pressures.
At the same time, earlier economic performance provides some support. Growth recorded in the fourth quarter of 2025, combined with public finances and low unemployment, is expected to offset part of the impact from external shocks, including regional conflict and health-related disruptions such as dengue fever.
Rising Inflation Driven By Global Market Shifts
Inflation is projected to increase from 0.1% in 2025 to 2.7% in 2026, before easing to 1.8% in 2027. Compared with earlier forecasts, this represents an upward revision of 1.9 percentage points for 2026 and 0.4 points for 2027. Higher international oil prices linked to the conflict, together with increases in domestic food prices during the first quarter of 2026, are identified as the main drivers behind the revised outlook.
