The latest developments in the Middle East pose another significant external challenge for Cyprus, economist Tasos Yasemides told the Cyprus News Agency.
He warned that a prolonged crisis, combined with persistently high energy prices and weaker global economic activity, could slow the growth of the Cypriot economy.
Renewed uncertainty in the global economy
Commenting on the renewed tensions between the United States and Iran, Yasemides said they had brought one of the most significant sources of uncertainty for the global economy back to the forefront.
He noted that the latest update to the International Monetary Fund’s forecasts, announced on Wednesday, 8 July, limited expected global economic growth to 3% in 2026, while identifying geopolitical conflicts as one of the greatest risks to international economic stability.
“At a time when markets were attempting to regain stability following the trade tensions and inflationary pressures of recent years, geopolitical instability in the Middle East is creating new risks, primarily through energy, transport and international trade,” he said.
The IMF also revised its global inflation forecasts upwards, mainly because of higher energy costs and uncertainty in oil markets.
Impact on Cyprus
“It is inevitable that, if the crisis is prolonged and accompanied by persistently high energy prices and a broader slowdown in the global economy, there will also be a negative impact on the growth rate of the Cypriot economy,” Yasemides said.
Higher production and transport costs, a potential slowdown in Cyprus’ main European markets and greater caution among investors are expected to weaken economic momentum over the coming months.
This could result in a lower growth rate than initially forecast, he added.
Cyprus remains heavily dependent on imported energy and fuel. Increases in international oil prices are therefore passed on to electricity costs, transport, business expenses and, ultimately, the prices of goods and services.
Uncertainty could also affect key sectors of the Cypriot economy, including tourism, shipping and investment.
“The main issue is the duration and intensity of the new escalation, with markets appearing particularly sensitive to such developments,” Yasemides said.
Call for targeted economic policies
According to Yasemides, the situation highlights the need for prudent fiscal policy, improved expenditure management, faster reforms and stronger economic resilience against external crises.
He also stressed the importance of modernising the state’s social policy and protecting citizens’ living standards through prudent and targeted measures.
Strong economic fundamentals
Despite the risks, Yasemides said the Cypriot economy has significant underlying strengths and is better positioned to manage international crises and uncertainty.
“Fiscal stability, improvements in the country’s credit rating, the resilience of the banking system and the continued inflow of foreign investment create a strong safety net against external shocks,” he said.
Source: CNA
