Cyprus economic outlook edges back to growth as pressures persist
The University of Cyprus leading index returned to marginal growth in August 2026, while the Central Bank expects slower growth this year before a recovery in 2027–2028.
Cyprus' short-term economic outlook returned to marginal growth territory in August, according to the latest Composite Leading Economic Index (CCLEI) from the Economics Research Centre of the University of Cyprus (CypERC), as reported by Cyprus Mail, although external pressures continue to weigh on the economy.
The CCLEI recorded a year-on-year increase of 0.02 per cent in August 2026, based on revised data, following declines in previous months.
The return to positive territory was driven mainly by stronger domestic indicators, including property sales contracts, credit card transactions by Cypriots, retail sales volumes and temperature-adjusted electricity production. These gains offset weaker external conditions, with Brent crude prices still well above year-earlier levels and tourist arrivals down year on year. The weighted Economic Sentiment Indicator also weakened compared with August 2025, limiting the overall improvement.
CypERC said the reading pointed to a gradual improvement in the short-term outlook, though pressures from the international economic and geopolitical environment remained.
The figures come as the Central Bank of Cyprus (CBC) expects the economy to slow this year before recovering over the following two years. The CBC projects GDP growth of 2.9 per cent in 2026, down from 3.8 per cent in 2025, followed by 3.1 per cent growth in both 2027 and 2028. It upgraded its forecasts compared with June, raising the 2026 projection by 0.4 percentage points and the 2027 forecast by 0.2 percentage points, citing stronger-than-expected momentum in the second quarter, better tourism developments and strong residential investment.
The central bank expects domestic demand to keep supporting the economy despite the effects of the Middle East conflict. Private consumption is seen remaining positive as households benefit from higher real disposable incomes, though inflationary pressures are expected to persist. The labour market and large residential and non-residential investment projects are also expected to support activity, with the CBC saying long completion periods and the expectation that geopolitical disruption would be temporary meant such investments were not expected to be cancelled.
The main drag is expected to come from net exports, forecast to make a negative contribution to growth in 2026, largely because tourism revenue fell in the first half of the year amid the Middle East conflict. Higher imports are also expected as domestic demand stays strong. The outlook improves in 2027 and 2028, when net exports are expected to contribute positively, mainly as tourism recovers further.
Overall, the CCLEI and CBC forecasts point to an economy supported by domestic activity and investment while remaining exposed to external shocks, particularly energy prices, tourism and geopolitical developments.
What it means for residents
For households and businesses on the island, the picture is one of slower but still positive growth rather than a downturn: the economy keeps expanding, but the pace eases this year before picking up again in 2027 and 2028. In practice, that means the pressure from energy and import costs is unlikely to fade quickly, while domestic demand, construction and employment should keep activity going.
- Watch your budget: with inflation expected to persist and fuel prices still high, household costs for transport, electricity and imported goods are likely to stay elevated in the near term.
- Property and investment: continued residential investment and construction activity suggest the market stays busy, which matters if you are buying, renting out or working in the sector.
- Tourism-dependent incomes: weaker tourism revenue in the first half of the year may affect seasonal work and businesses tied to visitors, with recovery expected mainly from 2027 onwards.
This text is written from the source article and is not a translation of it.
