The European Commission’s Autumn 2025 Economic Forecast for Cyprus is positive, highlighting robust economic growth of 3.4% in 2025, driven by domestic demand, investment, and service exports. According to the forecast, inflation has decreased to 0.9% in 2025 and is expected to stabilize close to 2% by 2027, while core inflation - excluding energy and food - remains slightly higher. Unemployment has reached a historic low of 4.3%, with employment increasing by 1.6% annually. Public finances remain strong, with a primary surplus of 4.1% of GDP in 2024 and 3.3% in 2025, while public debt is projected to decline from 62.8% in 2024 to 45.7% of GDP by 2027.\
Finance Minister hails progress
Following the release of the report, Finance Minister Makis Keravnos expressed “full satisfaction” with the findings saying the report clearly confirms the steady progress, resilience and momentum of the country’s economy amid a global environment of geopolitical turbulence.
“It is particularly encouraging that the European Commission finds that Cyprus’ economic growth remains strong,” Keravnos said, noting that, according to the Autumn Forecast, the Commission revised its projections for Cyprus’ 2025 growth rate by 0.4 percentage points compared with the Spring Forecast (to 3.4% from 3.0%), and its 2026 forecast by 0.1 percentage points (to 2.6% from 2.5%). “This places Cyprus as the third fastest-growing economy in the eurozone,” he added.
The Commission’s report, “confirms the continued confidence of the European institutions in Cyprus’ economy”, he said, adding that this was the result of the government’s “consistent economic policy, which lays solid foundations for a sustainable, outward-looking and socially fair development model.”
“Cyprus is moving forward with stability, planning, responsibility and prudent fiscal management,” he noted.
The ministry also welcomed the Commission’s Autumn 2025 forecast. “The EU’s revised projections, which closely align with the Ministry’s own forecasts, represent yet another vote of confidence in Cyprus’ economy."
Projected investment growth
The report said that Cyprus’s economic growth remains strong, primarily fueled by domestic demand. Private consumption is expected to gradually decline as real wage growth slows, but investment is projected to strengthen, supported by the completion of Recovery and Resilience Facility (RRF) projects in 2026. Service exports are also expected to remain dynamic.
Specifically, economic growth was measured at 3.2% in the first half of 2025, with total consumption increasing by 6.2% and investment accelerating by 18.4% year-on-year. Net exports contributed positively to growth due to strong trade in information and communication technologies (ICT) and record tourist arrivals.
Inflation
Regarding overall inflation, it is forecast to remain slightly below 2% in the medium term. Headline inflation dropped sharply in 2025, mainly due to lower energy prices and, to a lesser extent, reduced food prices. This decline reflects the impact of the temporary VAT reduction on energy bills. Headline inflation is projected to fall to 0.9% for 2025 as a whole, before gradually rising to 1.9% by 2027, as the effect of the VAT reduction diminishes and the introduction of ETS2 in 2027, if not delayed, pushes up energy inflation. Core inflation, excluding energy and food, is expected to remain slightly higher due to persistent price pressures in services, linked to strong tourism demand.
Cyprus’s economic momentum is expected to remain sound in the second half of 2025, leading to GDP growth of 3.4% for the entire year. GDP growth is projected to moderate to 2.6% in 2026 and 2.4% in 2027.
Real estate
Private consumption is expected to remain the main driver of growth, although its momentum will ease as real income growth slows and the inflow of foreign workers, which typically supports household spending, decelerates. This slowdown is expected to be partially offset by stronger investment, supported by the timely implementation of the RRF by 2026 and sustained inflows of foreign direct investment, particularly in real estate activities.
Regarding exports, the Commission estimates that they will also remain strong throughout the forecast period, thanks to positive tourism prospects and dynamic ICT activity. However, the global trade slowdown is negatively impacting the outlook for the shipping sector, particularly in 2026.
Unemployment
Despite a significant surplus in the trade of services, the current account remains in deficit due to profit repatriation by the many foreign companies. The current account deficit is projected to narrow gradually by 2027.
Unemployment in Cyprus is at a historic low, with the Commission estimating that job creation levels are solid, and employment increasing by 1.6% annually in the first half of 2025. Unemployment fell to a historic low of 4.3% during the same period. According to the Commission, employment growth has been supported by significant inflows of foreign workers, but these inflows are expected to gradually moderate as the initial wave of corporate relocations under the so-called "headquartering policies", designed to attract international companies to Cyprus, comes to an end.
Public finances in good shape
The European Commission assesses that public finances remain in good shape. In 2024, Cyprus recorded a significant surplus in the general government balance of 4.1% of GDP, with revenues growing more dynamically than expenditures. In 2025, the government surplus is projected to remain strong, slightly decreasing to 3.3% of GDP.
Favorable economic growth and labor market conditions continue to support strong revenue growth, despite increased spending on support measures and compensation payments following the July 2025 wildfires, as well as VAT reductions for energy and other essential goods. With the RRF entering its final phase, public investment is projected to receive a noticeable boost in 2025 and 2026.
For 2026 and 2027, public finances are forecast to remain favourable, and the government surplus is projected to hold at 3.0% and 3.2% of GDP, respectively. The end of the RRF in 2026 is expected to have a dampening effect on government revenue and expenditure in 2027.
The government debt-to-GDP ratio dropped by more than 8 percentage points to 62.8% at the end of 2024. This trend is projected to continue, with the debt level expected to fall to 56.4% of GDP by the end of 2025. Government debt is projected to further decrease to 51.0% of GDP in 2026 and 45.7% of GDP in 2027.
CNA