The Economics Research Centre (CypERC) of the University of Cyprus has updated its economic outlook for the growth of the economy for 2026 in October, forecasting it 0.5 percentage point higher, compared to its July forecast.
According to CypERC, real GDP growth in Cyprus is expected to moderate from 4.8% in 2025 to 3.2% in 2026 and 3.1% in 2027, reflecting the dampening effects of ongoing inflationary pressures and tighter monetary conditions.
Nevertheless, it is noted that upward revisions to the historical GDP growth data published on 20 October 2026 support a favourable outlook for 2026–2027, with economic activity expected to continue to expand at a robust pace despite these headwinds.
Compared with the July issue, the growth forecast for 2026 is 0.5 percentage point higher, whereas the forecast for 2027 remains unchanged. It is noted that the stronger growth outlook for 2026 relative to the July issue is primarily attributed to higher-than-expected economic growth during the second quarter, together with favourable developments in the third quarter, including stronger economic confidence, low unemployment, and continued growth in new housing loans.
Inflation forecast also higher
Inflation, as measured by the Consumer Price Index (CPI), is forecast to accelerate markedly, rising from 0.1% in 2025 to 3.1% in 2026, before easing to 2.3% in 2027. According to CypERC, the inflation forecasts for 2026 and 2027 are 0.1 and 0.2 percentage points higher, respectively, than in the July outlook.
"The upward revisions mainly reflect recent developments in prices and the real economy, including continued rapid increases in international oil prices, as well as robust economic growth and low unemployment in Cyprus," CypERC noted.
It is added that, since July's forecast, risks to the growth outlook have remained tilted to the downside, while upside risks to the inflation outlook have continued to dominate. "The ongoing conflict in the Middle East has intensified inflationary and, consequently, cost-of-living pressures and has remained a key source of uncertainty, posing a significant risk of lower growth and higher inflation than projected in this issue," CypERC mentioned.
In addition, it is noted that tighter-than-anticipated financing conditions in response to persistently high inflation could create new challenges for businesses, households and public finances, resulting in lower GDP growth than currently projected.
(Source: CNA)
