Cyprus enters 2026 after a year in which growth outperformed expectations, with key domestic and international institutions viewing the outlook with a mix of optimism and realism. The shared assessment is that the economy will continue expanding, while remaining exposed to external shocks and wider uncertainty.
Cyprus begins 2026 with growth momentum that exceeded expectations in the year just ended, and with the main international and domestic economic bodies taking a cautiously positive view of the months ahead. The common thread in projections by the European Commission, the International Monetary Fund, the Ministry of Finance, the Central Bank of Cyprus and the University of Cyprus Economics Research Centre is that the economy will keep growing, while remaining exposed to challenges from the external environment.
A key point of convergence is the estimate that Cyprus’ economy is expected to grow between 2.6% and 3.5% in 2026, a relatively strong pace within the euro area, where most countries are forecast to expand more slowly.
The labour market is expected to remain exceptionally stable, with unemployment staying low at around 4.5%, conditions suggesting that Cyprus is close to full employment. While positive for workers, this creates pressures that can curb further increases in consumption, with knock-on effects on GDP. If new workers do not enter the market, consumption is likely to level off.
On inflation, projections indicate it will stabilise between 1.5% and 2% in 2026, up from the particularly low levels of 0.8% to 1% in 2025. This suggests consumers and businesses will face a controlled cost-of-living environment, without necessarily resolving the broader issue of high living costs. Low inflation does not automatically mean prices are falling.
On the fiscal front, there is broad agreement that the country will remain on a surplus path, with public debt declining further. The budget is expected to record a surplus of around 2.9% to 3% of GDP, while public debt is projected to continue its downward trend, ending 2026 at roughly 50.9% to 51% of GDP.
However, the challenges outlined by these institutions are not negligible. Cyprus relies heavily on services exports, tourism and the information and communications technology (ICT) sector, areas vulnerable to international disruption. Global trade uncertainty, geopolitical tensions and the possibility of another energy shock are factors that will require close attention.
Economics Research Centre
The University of Cyprus Economics Research Centre, considered the country’s most reliable and independent research body, forecast in October robust growth of 3.5% for 2026. The outlook is supported by positive developments both domestically and internationally, particularly in the third quarter of 2025. At home, these developments include further declines in inflation, strong economic confidence and an accelerated pace of new lending supported by interest rate cuts. Internationally, reduced uncertainty over global trade policy and lower market volatility in the third quarter of 2025 contributed to improved prospects compared with the July forecast.
Central Bank of Cyprus
The Central Bank of Cyprus published its projections on 22 December, reflecting the latest economic trends. It estimates GDP growth of around 3% in 2026, with steady growth continuing in 2027 and 2028.
For inflation, the Central Bank projects 1.7% in 2026, rising to 2.2% in 2027. These forecasts have already been revised down by 0.4 percentage points compared with the September projections, mainly because the Cypriot government extended the reduced VAT rate from 19% to 9% beyond 2026.
The labour market, according to the Central Bank, will remain stable and resilient, with unemployment at 4.5% in 2026. It underlines that growth will be supported by domestic demand, particularly private consumption and investments linked to projects under the EU Recovery and Resilience Plan. However, it acknowledges that risks to growth are tilted to the downside due to uncertainty in global trade policy.
IMF
The International Monetary Fund forecasts that Cyprus’ economy will expand by 2.8% in 2026, according to the revised October edition of its World Economic Outlook. The revision indicates that major international institutions view Cyprus as resilient and capable of sustaining average growth of around 3% and beyond.
The IMF estimates that private consumption will begin to slow in 2026. Tourism and incomes will continue to support demand, but the economy will need more public investment and private capital expenditure to underpin growth.
Among the risks identified by the IMF is the possibility of escalating trade tensions and disputes, particularly if they extend to services and foreign direct investment, which would have a strong impact on the Cypriot economy.
European Commission
In its autumn forecasts, the European Commission revised its 2026 growth estimate for Cyprus upwards to 2.6% from 2.5%. It describes Cyprus’ economic growth as strong, driven mainly by domestic demand. Household consumption is expected to gradually moderate as real wage growth slows, while investment is expected to be stronger, supported by the completion of projects under the European recovery mechanism. The Commission notes that the debt-to-GDP ratio is expected to continue falling and drop below 50% of GDP in 2027.
Ministry of Finance
The Ministry of Finance expects growth of 3.1% in 2026, unemployment at 4.6% and inflation at 2.1%, while also pointing to the expected positive effects of the recently passed tax reform. The reform is expected to increase private consumption, an effect not reflected in the projections of other institutions.
According to the ministry’s baseline macroeconomic scenario, the medium-term outlook for the Cypriot economy remains positive, but with a significant degree of uncertainty due to adverse geopolitical developments.