Real GDP growth in Cyprus is projected at 3.2% in 2025 and at 3.3% in 2026, below the growth rate attained in 2024 (around 3.5%), according to University of Cyprus' Economic Research Centre's (ERC) Economic Outlook July 2025.
The forecasts for 2025 and 2026 are higher by 0.4 and 0.1 percentage points, respectively, compared to those in the April issue. Higher-than-expected growth in Cyprus during the first quarter of 2025, and further improvements in domestic activity and the labour market (as reflected in leading indicators for April–June) suggest a stronger outlook relative to the April issue.
Additionally, recent declines in inflation, and the reduction of policy rates in the euro area, which has pushed domestic borrowing costs down, also contribute to an improved outlook in this issue.
Nevertheless, said the ERC, growth in trading partner economies has remained muted, and economic sentiment in the EU has continued to fluctuate below its long-term average, weighing on the outlook for Cyprus. The growth forecasts are accompanied by downside risks, particularly as higher tariffs may adversely affect growth in the EU. Other downside risks to growth in Cyprus continue to stem from geopolitical conflicts and climate-related events.
Upside risks to the growth outlook may arise from stronger-than-expected demand due to easing global uncertainty in light of international trade agreements, as well as from new investments.
CPI inflation is forecast at 1.0% in 2025 and at 1.5% in 2026, down by 0.5 and 0.3 percentage points, respectively, compared to the April issue. The downward revisions were mainly driven by a significant deceleration of inflation in Cyprus during the second quarter, supported by year-on-year declines in international oil prices. Lower food inflation and easing business expectations for selling prices in the second quarter also contribute to the muted inflation outlook in this issue.
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