Geopolitical Uncertainty Overshadows Trade Balance Improvements
Rising geopolitical tensions in the Middle East are expected to weigh on Cyprus’ external balance despite a strong increase in the country’s services surplus, according to a new analysis from Eurobank Research. The report showed that Cyprus’ services surplus increased from 23.5% of GDP in 2024 to 25.2% in 2025, driven largely by growth in tourism, financial services and intellectual property activities. At the same time, Eurobank Research warned that prolonged regional instability could offset part of those gains through weaker tourism demand, slower trade activity and higher energy costs.
Tourism And Transportation Under Pressure
Tourism remained one of the strongest contributors to economic growth in 2025. Visitors from the European Union accounted for 59.8% of the increase in arrivals, while Israeli travellers contributed 33.1% of the annual growth, according to the report. A slowdown in European economic activity, combined with geopolitical uncertainty in the region, could reduce tourism revenues and weaken travel demand over the coming months. Transportation services are also expected to face pressure from disruptions affecting shipping routes and global trade flows.
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Eurobank Research noted that heightened uncertainty could increase investor caution and reduce investment activity across several sectors. Despite current risks, Cyprus has historically benefited from periods of regional instability because it is often viewed as carrying lower geopolitical risk than neighbouring countries while maintaining relatively strong long-term economic prospects.
Energy Prices And Shifting Trade Dynamics
Another critical factor influencing the trade balance is the sharp rise in energy prices. Cyprus’s heavy reliance on heavy fuel oil and the inelastic nature of domestic energy demand create vulnerability. As outlined by Eurobank Research, higher energy costs have led to adverse effects on the goods balance. Moreover, the previously robust export performance of refined oil products witnessed in 2025 is unlikely to persist, leading to a subsequent weakness in both oil exports and imports.
The net outcome on the goods balance will depend on the elasticity of domestic energy consumption and export demand in response to price fluctuations. Additionally, the downturn in transportation activity may prompt asset sales in the maritime and aviation sectors in the latter half of the year, potentially supporting the goods balance.
Robust Performance In 2025 And Future Outlook
The strong services surplus recorded in 2025 reflected continued expansion across several key industries. Eurobank Research said surpluses linked to intellectual property, tourism and financial services reached 5.3%, 5.7% and 6.5% of GDP respectively, compared with 4.4%, 5.2% and 6.1% a year earlier. Transportation and other business services generated smaller surpluses at 2.1% of GDP.
ICT services, which played a major role in GDP growth between 2021 and 2025, maintained a high surplus level despite moderating growth dynamics. Tourism activity also remained strong throughout 2025, with arrivals surpassing 4.5 million and real tourism revenues exceeding €2.8 billion in 2015 prices. Recovery in financial services further reflected structural changes within the sector following mergers, acquisitions and successive sovereign credit rating upgrades that returned Cyprus to investment-grade A status in November 2024 after 13 years.
