GDP growth in Cyprus is expected to remain broadly stable, at 3.5% in 2026 and 3.4% in 2027, according to the University of Cyprus' Economic Research Center (CypERC).
In its January Economic Outlook issue, it says that real GDP growth in Cyprus is estimated to have slowed from 3.9% in 2024 to 3.5% in 2025. Going forward, GDP growth is expected to remain broadly stable, at 3.5% in 2026 and 3.4% in 2027.
It notes that the forecasts for 2025 and 2026 have remained unchanged from the October issue. The growth outlook is primarily driven by favourable domestic developments during 2025 including a tight labour market, disinflation, high economic confidence, and robust growth in new loans, supported by lower interest rates, it notes.
Despite elevated global uncertainty and swings in market volatility in 2025, it adds, external factors contributing to the outlook for Cyprus include steady, albeit modest, growth in trading partner economies, as well as the strong performance of stock markets, reflecting resilient global prospects.
Regarding inflation, as measured by the Consumer Price Index (CPI), it is forecasted to rise from 0.1% in 2025 to 0.8% in 2026 and 1.4% in 2027. It says that the inflation forecast for 2026 has been revised down by 1.2 percentage points compared with that in the October issue, as inflation continued to surprise on the downside and international oil prices declined further in the fourth quarter of 2025.
The muted inflation outlook is shaped by developments during 2025, particularly in the final quarter, it says, adding that these include double-digit annual declines in international oil prices, the easing of global food prices in the last quarter of 2025, and the appreciation of the euro against the US dollar.
Furthermore, it notes that growth risks are tilted to the downside, mainly due to the external environment, particularly the possibility of slower-than-expected growth in trading partner economies. Inflation risks, by contrast, lie to the upside, largely stemming from robust domestic activity and tight labour market conditions, it concludes.
(Source: CNA)
