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Cyprus Growth Slows To 3% As Imports Weigh On Net Exports, While Construction Remains A Key Support

The Cypriot economy grew 3.0% year on year in the first quarter of 2026, marking its slowest pace in 10 quarters as a rebound in imports reduced the contribution from net exports. Domestic demand, however, remained resilient, supported by stronger private consumption, low unemployment and continued strength in residential investment.

Imports Dampen First-Quarter Growth

According to Eurobank Research, GDP growth eased from 4.3% in the fourth quarter of 2025 and 3.6% in the first quarter of the previous year.

The slowdown was driven primarily by a weaker contribution from net exports. Although exports and imports both recorded strong annual growth of 10.5% and 10.4%, respectively, imports rebounded sharply after an unusually weak period a year earlier, particularly in transport equipment such as ships and aircraft. As a result, external trade contributed less to overall economic growth.

Domestic Demand Remains The Main Engine

Domestic demand continued to underpin the economy. Private consumption accelerated to 4.9% year on year from 3.6% in the previous quarter, supported by favourable labour market conditions. Unemployment fell to 4.0%, the lowest first-quarter level on record.

Public consumption also strengthened, while the decline in gross fixed capital formation eased significantly to 6.9% from 21.7% a quarter earlier.

Residential investment remained resilient, expanding 4.7% year on year after a 5.9% increase in the previous quarter, supported by strong growth in housing lending throughout 2025. By contrast, momentum in non-residential construction weakened considerably, while investment in intellectual property products declined sharply for a second consecutive quarter.

Tourism Faces Pressure, But Services Remain Resilient

Looking ahead, Eurobank Research expects Cyprus to remain exposed to geopolitical tensions in the Middle East, although the overall macroeconomic impact should remain limited if regional conditions continue to stabilise following the June 17 ceasefire agreement.

Tourism and transport are likely to experience the greatest pressure. After a record year in 2025 and strong growth at the beginning of 2026, tourist arrivals fell sharply in March and April before the decline eased to 4.9% in May, raising hopes of a gradual recovery during the summer season.

Information and communications technology, financial services and other business services are expected to remain comparatively resilient.

Inflation And Labour Market Pressures Emerge

Some signs of strain are beginning to appear. Registered unemployment rose 9.0% year on year in April and May, reversing the decline recorded during the first quarter. The increase was concentrated in tourism, administrative services and logistics.

Inflation also accelerated, reaching 4.0% in June from 0.9% in February as higher energy costs filtered through to service prices. Government measures aimed at containing imported inflation, together with an increase in wage indexation to 90% from July, are expected to help offset some of those pressures.

Construction Continues To Support Growth

Construction is expected to remain one of the economy’s key growth drivers through the second half of 2026.

Building permits increased 48.8% year on year in January and February, while the total approved building area expanded by 56.5%. Property sales also remained strong during the first four months of the year, supported by continued growth in housing lending.

Momentum softened in May as demand from foreign buyers eased. Even so, overseas purchasers remained the primary driver of market growth during the first five months of the year, accounting for 61% of the increase in property sales.

Labour Shortages Remain The Main Structural Challenge

Despite slower economic growth, Cyprus continues to benefit from strong public finances, improving financing conditions and a business-friendly regulatory and tax environment.

Eurobank Research identifies labour shortages as the country’s main structural constraint. With the job vacancy rate remaining elevated at 2.8% in the first quarter, policies that improve labour mobility and attract skilled foreign workers will be essential to sustaining the Cypriot economy’s medium-term growth potential.

Cyprus Company Registration: Two To Four Days, Unless Security Checks Intervene

Cyprus aims to register companies within two to four working days when applicants submit complete documentation. However, regulatory approvals, sanctions checks, foreign ownership and national security considerations can extend the process or prevent registration.

Energy, Commerce and Industry Minister Michael Damianou outlined the timeframe in a written response to MP Efrem Christou, who asked about company formation procedures and the checks required before approval.

Fast Registration Depends On Complete Documentation

Damianou said authorities seek to process complete applications within two to four working days, regardless of a company’s structural complexity. The timeframe also depends on whether applicants pay an additional fee for expedited processing.

According to the official incorporation requirements, the standard registration fee is €165, rising to €235 for companies without share capital. Expedited processing costs an additional €100.

Applicants must submit an approved company name, a memorandum and articles of association, and forms HE1, HE2 and HE3. Public companies must also provide form HE5.

Regulated Businesses Require Additional Approval

Companies operating in certain sectors must obtain prior clearance from the relevant authorities or professional bodies. These include medical and dental businesses, law firms, insurance and reinsurance companies, and firms supervised by the Cyprus Securities and Exchange Commission.

The Central Bank of Cyprus must also approve company names associated with payment institutions, electronic money and foreign exchange services. Additional restrictions apply to educational institutions using terms such as “university” or “college”, casino operators, broadcasters and wine producers.

Non-profit organisations seeking to register without “Limited” or “Ltd” in their names also require ministerial authorisation.

Sanctions And Foreign Ownership Trigger Extra Checks

Applications involving shareholders, directors or company secretaries subject to EU, UN or US sanctions receive additional scrutiny. Registration can proceed only if the competent sanctions authority does not prohibit it. Damianou noted that US sanctions are considered indirectly but have not been incorporated into Cyprus legislation in the same way as EU and UN restrictions.

Applications involving Turkish interests are also subject to additional review. Under procedures introduced around 20 years ago, the registrar must consult national security services before proceeding with registrations involving Turkish interests or businesses that could threaten the Republic’s security.

Damianou distinguished these cases from applications submitted by Turkish Cypriots, saying there is “no substantial difference” in how their registration documents are examined. Applications may nevertheless be refused if classified information raises concerns about national interests or national security.

Public Servants Face Separate Restrictions

Under Article 65 of the public service law, government employees cannot act as directors, company secretaries or shareholders in private or public companies without prior special permission from the finance minister.

Proposed Law Would Expand Registrar’s Powers

The government is also seeking to strengthen the Registrar of Companies’ authority to address potential security risks. An amendment to the companies law, submitted to Parliament on September 17, would allow the registrar to reject applications, refuse company filings or remove existing businesses from the register on grounds including national security, public order, public interest and the protection of state sovereignty.

The proposal, approved by the Council of Ministers on August 6, remains before the House commerce committee. It would allow authorities to withhold detailed justifications where disclosure could reveal sensitive information, while informing affected companies of the general grounds for decisions.

The bill follows parliamentary discussions about companies controlled by non-EU nationals, particularly those with Turkish ultimate beneficial owners, and possible implications for property ownership through foreign-controlled businesses. Further details are available in the proposed amendment and earlier parliamentary reporting.

Balancing Investment And Oversight

Cyprus is seeking to maintain an efficient company registration process while strengthening checks on ownership, sanctions compliance and potential security risks.

The two-to-four-day target supports the country’s appeal to entrepreneurs and international investors, but the actual timeline depends on the nature of the business, the documentation submitted and any additional regulatory or security reviews required.

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