Growth outlook revised lower
The Central Bank of Cyprus has revised down its Cyprus growth forecast, citing increased geopolitical uncertainty and a weaker outlook for exports.
According to its June Economic Bulletin, the Central Bank now expects the country’s real GDP to grow by 2.5% in 2026, 2.9% in 2027 and 3.1% in 2028.
Compared with its March projections, the downward revision is mainly attributed to the expected negative impact on net exports amid heightened geopolitical uncertainty.
Alongside its updated macroeconomic projections, the Central Bank outlined several key risks that could affect Cyprus’ economic performance over the coming years.
Geopolitical tensions remain a major concern
The Central Bank identifies developments in the Middle East as the main source of uncertainty.
While the announcement of an agreement between the United States and Iran is viewed as a positive step, the bank notes that the deal has yet to be fully finalised and implemented.
If either side fails to meet its commitments, renewed disruptions to global energy, commodity and raw material markets could push international prices higher, placing further pressure on the Cyprus growth forecast.
Energy prices could fuel inflation
The Central Bank warns that failure to implement the agreement could keep oil prices structurally higher than expected.
Higher energy costs, rising raw material prices and renewed supply chain disruptions could slow economic activity while increasing inflationary pressures.
The report also highlights domestic risks, including stronger-than-expected wage growth due to the tight labour market and higher business profit margins, which could further contribute to inflation.
Tourism and exports under pressure
The Central Bank expects net exports to make a negative contribution to GDP in 2026.
This is mainly attributed to lower tourism revenue, weaker shipping income resulting from disruptions linked to the conflict in the Middle East and slower growth in other export-oriented services.
The report warns that a sharper-than-expected decline in tourism or exported services could lead to a weaker Cyprus growth forecast than currently projected.
Climate change also poses economic risks
The report also identifies climate-related risks, including extreme weather events and the potential impact of additional green taxes introduced under European legislation.
According to the Central Bank, these developments could affect both economic activity and inflation in the years ahead.
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