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Middle East Tensions Cloud Cyprus Growth Outlook As Inflation Pressures Build

by THEFUTURE.TEAM

July 30, 2026

Cyprus’ economic growth is expected to slow in 2026 while inflation accelerates, according to updated forecasts from the Economics Research Centre of the University of Cyprus (CypERC), which cited weaker momentum and higher uncertainty linked to the conflict in the Middle East.

Growth Forecast Revised Lower

CypERC expects real GDP growth to slow to 2.7% in 2026 from an estimated 3.8% in 2025 before recovering to 3.1% in 2027.

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The 2026 forecast was revised down by 0.2 percentage points from the centre’s April projections, while the 2027 estimate was unchanged.

According to CypERC, the downgrade reflects weaker economic activity during the first quarter of 2026 in Cyprus and the euro area, together with signals from leading indicators between April and June. The centre said the conflict in the Middle East has contributed to weaker regional and international economic conditions.

Inflation Expected To Accelerate

The research centre forecasts inflation will rise from 0.1% in 2025 to 3% in 2026 before easing to 2.1% in 2027.

The 2026 and 2027 inflation forecasts were both revised up by 0.3 percentage points from April. CypERC attributed the higher projections mainly to rising international oil prices in April and May, as well as stronger domestic inflation during the second quarter.

“The continuing tensions in the Middle East have intensified upward pressure on international commodity prices, particularly oil, and have increased uncertainty regarding the outlook for economic growth and inflation,” the centre said.

Domestic Fundamentals Remain Supportive

Despite the weaker outlook, CypERC said low unemployment, strong public finances and higher new housing lending should continue to support economic activity.

However, the centre warned that weaker external demand, stronger inflationary pressures and tighter financing conditions could weigh further on growth.

“As the effects of the conflict continue to spread through the Cypriot economy, leading to weaker external demand, stronger inflationary pressures and tighter financing conditions, the risks are tilted towards even lower economic growth than forecast, as well as even higher or more persistent inflation,” the report said.

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Cyprus GDP Growth Accelerates To 3.3% In Q2, Outpacing EU

by THEFUTURE.TEAM

September 7, 2026

Cyprus recorded one of the European Union’s stronger economic performances in the second quarter of 2026, with GDP growth accelerating to 0.8% from 0.5% in the first quarter.

On an annual basis, GDP increased 3.3%, up from 3.0% in the previous quarter, according to Eurostat. That outpaced quarterly growth of 0.6% in the euro area and 0.7% across the EU, while annual growth reached 1.2% and 1.4%, respectively.

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Ireland Leads As Austria Contracts

Ireland posted the EU’s strongest quarterly growth at 10.2%, followed by Slovenia at 1.8% and Lithuania at 1.7%. Austria was the only member state to record a contraction, with GDP falling 0.1%.

Employment Growth Supports Cyprus Economy

Cyprus also recorded stronger employment growth, with employment rising 0.5% in the second quarter after remaining flat in the first. Year over year, employment increased 1.6%, although that was slower than the 2.0% gain recorded in the first quarter.

Across the EU and euro area, employment increased 0.1% in the quarter. Portugal posted the strongest increase at 1.0%, followed by the Czech Republic and Malta at 0.9%, while employment fell 0.8% in Finland and 0.4% in Greece.

Trade Provides Strong Support

Hours worked increased 0.1% quarter over quarter in both the EU and euro area, and were up 0.8% and 0.7%, respectively, from a year earlier.

Household consumption contributed 0.2 percentage points to quarterly growth in both regions, while government consumption had little impact. Investment was broadly flat in the euro area and added 0.1 percentage points to EU growth, while inventory changes reduced growth by 0.5 percentage points in both.

Net trade provided the strongest boost, contributing 0.9 percentage points to euro area growth and 0.8 percentage points to EU growth.

US Growth Slows By Comparison

US GDP increased 0.4% in the second quarter, down from 0.5% in the first. Annual growth slowed to 2.1% from 2.7%. For Cyprus, the latest figures show growth accelerating above the EU average alongside stronger employment, while trade and domestic demand continued to support broader European activity.