The Cypriot economy is showing greater resilience to the current geopolitical crisis than many analysts had anticipated, according to assessments by international rating agencies.
While higher energy prices and inflation have weighed on economic activity in the short term, rating agencies argue that continued growth in employment and investment, together with the increasing importance of sectors beyond tourism, have helped limit the impact on overall economic performance.
Economy withstands external pressures
“The global uncertainty stemming from the war in the Middle East and trade disruptions linked to tariffs is undoubtedly placing pressure on the Cypriot economy,” Jason Graffam, senior vice-president of sovereign ratings at Morningstar DBRS, told Politis.
He noted that the effects are visible in short-term economic indicators, as uncertainty and higher energy costs affect both tourism and inflation.
Graffam said the slowdown in growth highlights the vulnerabilities of Cyprus' export model, which remains heavily dependent on services and therefore exposed to external shocks.
However, he added that Cyprus has proven more resilient to the effects of the Iran conflict than initially expected.
Domestic demand remains strong
According to DBRS, that resilience reflects both favourable cyclical conditions and structural changes that have taken place over recent decades.
On the cyclical side, economic growth has been supported by strong domestic demand driven by:
- rising employment
- higher real wages
- investment linked to construction activity
At the same time, services exports continue to grow, supported by tourist arrivals and rapid expansion in the information and communications technology (ICT) sector.
Diversification strengthens economy
Graffam also highlighted significant productivity improvements and greater economic diversification.
He noted that sectors including:
- technology
- business services
- financial services
- shipping
- professional services
now account for a larger share of economic activity than in previous years, reducing reliance on tourism alone.
Following an expected moderation in growth this year, the Central Bank of Cyprus forecasts real economic expansion of around 3.1% in both 2027 and 2028, broadly in line with the country's long-term growth potential.
DBRS upgrades outlook
In its latest baseline macroeconomic scenarios, DBRS expects Cyprus' economy to grow by 2.5% in 2026 and 2.7% in 2027.
The agency recently revised its 2027 forecast upward by 0.3 percentage points compared with its June estimate.
On 4 September, DBRS upgraded Cyprus' outlook from stable to positive, while maintaining the country's sovereign credit rating at A.
The agency said the positive outlook reflects expectations that Cyprus will continue to maintain a strong fiscal position and further reduce its public debt burden.
Landmark upgrade from S&P
Cyprus also received a significant boost from S&P Global Ratings, which recently upgraded the country's long-term and short-term sovereign ratings from A-/A-2 to A/A-1, while assigning a positive outlook.
The move marked the first time Cyprus has returned to that rating level since 2010.
According to S&P, strong growth in services exports, particularly in information technology and intellectual property activities, has broadened the country's export base.
The agency also noted that substantial foreign direct investment inflows have helped limit the build-up of private sector external debt despite current account deficits, while budget surpluses have supported a significant reduction in public debt.
Growth expected to remain near 3%
S&P expects Cyprus' economy to expand at an average rate of just under 3% through 2029, supported by:
- resilient domestic demand
- a strong labour market
- rising real incomes
- significant public and private investment
including projects financed through the Next Generation EU programme.
Attention is now turning to the next sovereign assessments.
Fitch Ratings is scheduled to announce its decision on 6 November 2026, while Moody's is due to publish its review on 20 November 2026.
Fitch maintained Cyprus at A- with a positive outlook in May 2026, while Moody's reaffirmed its A3 rating with a stable outlook later that month.
Growth outpaces eurozone average
According to the latest data from the Statistical Service, Cyprus' seasonally adjusted GDP grew by 3.3% year-on-year in the second quarter of 2026, significantly outperforming the averages recorded across both the eurozone and the European Union.
