Filenews 20 June 2025
The Central Bank of Cyprus (CBC) forecasts steady growth of the Cypriot economy and a de-escalation of inflation for the period 2025-2027, according to the June 2025 macroeconomic estimates, which were compiled before the recent Israel-Iran conflict.
For 2025, GDP growth is projected at 3.1%, slightly down from 3.4% in 2024, while in the period 2026-2027 growth is expected to remain at 3% per annum. Domestic demand, boosted by private consumption and investment, remains a key driver, while external demand is weighed down by international uncertainty.
The labour market is projected to remain resilient, with unemployment falling to 4.7% in 2025 and stabilising at this level in the coming years, indicating near-full-time employment conditions.
Inflation, based on the Harmonised Index of Consumer Prices (HICP), is expected to decline to 1.5% in 2025, from 2.3% in 2024, owing to lower energy prices and monetary policy lag. For the years 2026 and 2027, a gradual increase to 2% and 2.4% respectively is projected, mainly due to an expected increase in energy and food prices, as well as the impact of the carbon tax from 2027.
Core inflation, excluding energy and food, is estimated at 2.1% in 2025 and 1.9% in 2026-2027, affected by limited increases in industrial products and a strengthening of the euro, but maintained above 2% in services due to tourism and the labour market.
Compared to the March 2025 forecast, the CBC's new estimates include slight revisions: by 0.1 points for GDP and by 0.6 points for inflation in 2025, mainly due to revised energy prices and government support measures on electricity costs.
Risks to growth are mainly assessed to be downwards, due to a possible escalation of the crisis in the Middle East and an impact on tourism and international trade. In contrast, inflationary risks are assessed upwards, focusing on energy prices, potential wage pressures and the impact of tax reform on consumption.
The CBC stresses that, despite international turbulence, the Cypriot economy remains on a steady growth trajectory, with positive performance in key indicators and prospects boosted by investment projects, services exports and tourism.
