Strong growth masks structural vulnerabilities
Cyprus has demonstrated remarkable resilience since the pandemic, recording some of the highest growth rates in the eurozone. However, this performance does not automatically translate into long-term economic stability, according to economist Tasos Yasemidis, CEO and Head of Global Compliance Management Services at KPMG Cyprus, analysing Cyprus’ economic outlook.
Writing in Economy Today, Yasemidis notes that recent growth has been driven by a mix of structural forces and temporary factors, including the rapid recovery of tourism, relocation of international companies to Cyprus, and steady performance in construction and professional services.
While these developments have supported the economy, he stresses that Cyprus remains highly exposed to external shocks.
An “exogenous economy” reliant on external factors
Despite progress, Yasemidis describes Cyprus as an “exogenous economy”, pointing to its dependence on foreign investment, imported energy, and international economic conditions. This reliance is also reflected in the country’s persistently negative current account balance.
To transform current growth into a permanent trajectory, he argues that Cyprus must strengthen its productive base through higher productivity, technological upgrading, reduced bureaucracy, and sustained investment in human capital.
Although sectors such as technology now contribute more than 10% of GDP, and health, education, and defence-related technologies are expanding, significant room for improvement remains, particularly in the primary sector.
Technology can transform the economy — but not automatically
According to Yasemidis, the relocation of technology companies and start-ups to Cyprus offers real potential, but only if supported by a coherent ecosystem.
“The transformation through technology is feasible, but it is not automatic,” he notes, emphasising the need for institutional stability, competitive taxation, and modern infrastructure.
He highlights the importance of transparent institutions, simplified licensing procedures, predictable regulation, and fast administrative processes. On taxation, he views the ongoing reform debate positively, provided it delivers stability and carefully balances fiscal costs with incentives for innovation and skilled labour.
2026 reforms seen as turning point
Yasemidis identifies 2026 as a potential turning point for the Cyprus economic outlook, with the introduction of a foreign direct investment screening mechanism and the planned increase in corporate tax from 12.5% to 15%.
He argues that these measures align Cyprus with global trends prioritising transparency and regulatory compliance and could ultimately enhance credibility, particularly in a volatile geopolitical environment.
While higher corporate taxation may raise concerns, he believes competitiveness can be maintained through faster procedures, innovation incentives, and continued investment in human capital.
Structural causes behind current account deficit
The prolonged weakness of Cyprus’s current account balance, Yasemidis explains, reflects deep-rooted structural issues rather than short-term fluctuations.
These include low productivity, heavy reliance on imports, limited domestic manufacturing, high consumption, and insufficient exports of high value-added products.
Reversing the trend, he says, requires targeted policies to boost productivity through technology, expand export-oriented sectors such as digital services and green technologies, reduce energy dependence through renewables, and strengthen domestic production where Cyprus holds comparative advantages.
EU Presidency offers reform catalyst
Looking ahead to Cyprus assuming the EU Council Presidency on 1 January 2026, Yasemidis sees a strategic opportunity for both international positioning and domestic reform.
At a time when the European Union is reassessing priorities in energy security, technological autonomy, green transition, and financial stability, Cyprus can act as a bridge between European policy and regional stability.
Domestically, he notes that EU presidencies have historically served as catalysts for accelerating reforms, particularly in digital transformation, institutional efficiency, and economic modernisation.
According to Yasemidis, leveraging this moment effectively could strengthen Cyprus’s long-term resilience and redefine its role within a rapidly changing global environment.
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