Filenews 29 December 2025
The Cypriot economy entered 2025 with high growth rates, after strong growth of 3.4% in 2024 in real terms, in a year marked by intense international uncertainty, geopolitical risks and important domestic decisions in taxation and labour.
The start of 2025 found the country facing an unstable global environment, as the tariff "war" declared by US President Donald Trump on all economies worldwide heightened concerns about a resurgence of inflation and a possible economic downturn. At the same time, conflicts in the Middle East, the ongoing war in Ukraine and climate change have further aggravated the climate of uncertainty.
Growth, inflation and unemployment in 2025
Despite external pressures and domestic fronts, the economy maintained its momentum, recording strong growth of 3% in the first quarter. The Ministry of Finance's forecast for the whole of 2025 places growth at 3.1%, with inflation of 0.9% and unemployment of 4.6%, a level that refers to full-time employment conditions.
According to the June edition of the Strategic Fiscal Policy Framework 2026-2028, the Ministry of Finance predicts a growth rate of 2.9% – 3.1% for the next four years, while estimating that public debt will fall to 43.3% by 2028.
Energy and agreements in the Cypriot EEZ
Significant developments were recorded in the energy field during the first four months, with the signing of an agreement and a Memorandum of Understanding in Cairo for the exploitation of deposits in the Cypriot EEZ and the deepening of cooperation between Cyprus and Egypt.
The Republic of Cyprus, Egypt and the managing companies Chevron, NewMed and Shell signed a Memorandum of Understanding for the development of the "Aphrodite" field, setting out a framework for the effective commercialization of natural gas. Subsequently, the two countries and the licensed ENI-TOTAL consortium signed the Host Country Agreement for Block 6, where the Kronos, Zeus and Calypso deposits are located.
Interest rate cuts by the ECB
The interest rate cuts by the European Central Bank also had a positive impact on the economy, with three reductions of 0.25% in January, March and June 2025.
Second quarter: Strengthening confidence, energy and the burden of fires
The second quarter reflected a period of strengthening confidence, with Cyprus exiting the macroeconomic imbalance regime in the context of the European Semester 2025, as – as reported – vulnerabilities related to external and private debt, also supported by strong growth, were reduced.
The European Commission, according to the text, made recommendations for the continuation of reforms and investments, while the Spring Forecast for Cyprus refers to continued growth in 2025 and 2026 due to domestic demand and healthy exports of services, with the risk of indirect effects remaining.
On the ratings front, upgrades/positive signals from international agencies were recorded in 2025. On 24/5, Fitch confirmed the long-term rating at 'A-' with a solid outlook, citing fiscal performance, debt reduction and resilient growth, while pointing to external vulnerabilities and geopolitical risks.
In energy, on July 7, the President of the Republic Nikos Christodoulides was informed about a 350-meter column of clean natural gas demonstrated by the "Pegasus-1" drilling in Block 10 of the Cypriot EEZ, in a teleconference with the Vice President of ExxonMobil, John Ardill. At the same time, the preparatory work for the tax reform progressed, with the bills being given for consultation in July.
In the banking sector, the merger between Hellenic Bank and Eurobank was completed, while on 24/6 an agreement was signed for the sale of all assets/liabilities of AstroBank to Alpha Bank Cyprus, with completion expected in Q4 2025.
In June, the e-kalathi application for transparency and price comparison in supermarkets was launched, while in the same month the visit of Indian Prime Minister Narendra Modi (June 15) was recorded, with references to investment opportunities and the establishment of an India-Cyprus-Greece Business and Investment Council, as well as a reference to the accession of Cyprus to the IMEC.
In the summer, the text points out the tragic fires in mountainous Limassol as a decisive event, with the government deciding on financial support measures, including covering the salaries of fire-affected workers. In August, replacement payments began through the 2025 Partial Replacement Plan of the National Solidarity Fund.
Third semester: ATA, tax reform and international agreements
The third quarter culminated, according to the text, with the voting of the tax reform by the Plenary Session of the Parliament shortly before the end of the year. A key issue was also the agreement on the Automatic Indexation (ATA), after negotiations, stagnation in September and a general strike of the trade unions, until the final signature by the social partners and the competent ministers. President Christodoulidis spoke of a permanent solution, noting that through the connection of the ATA with the minimum wage, it is extended to about 55,000 low-wage earners.
For the tax reform, the discussion in the Finance Committee began on November 7, was completed in December and the reform was voted on December 22, so that it can be implemented from January 1. Among other things, an increase in the tax-free allowance to €22,000, changes in scales and an increase in corporate tax to 15% are planned.
The focus was also on the delays in the Cyprus-Greece Great Sea Interconnector (GSI) project, with public statements and an agreement between Cyprus, Greece and the European Commission in November to update economic and technical studies, with the aim of potential support through the entry of strong investors.
At the same time, reference is made to the project of the natural gas terminal in Vasiliko, after delays, the withdrawal of €67 million in funding from the EU and an investigation by the European Public Prosecutor's Office, with the Minister of Energy stating that the project is feasible and will be completed.
In terms of foreign economic policy, in November the signing of the Cyprus-Lebanon EEZ Delimitation Agreement is mentioned, as well as an agreement to promote the exploration of the electrical interconnection. As of October 1st, the commercial operation of the Competitive Electricity Market began.
At the end of the four-month period, the text records positive signals from rating agencies (DBRS Morningstar, S&P, Fitch), forecast revisions by the IMF and the European Commission, as well as developments in social/labour issues (mobilizations at the port of Limassol), legislation for the control of foreign direct investments, teleworking in the public sector and the full implementation of Instant Payments within SEPA.
The third quarter ended with a partial reshuffle, with changes in ministries related to the economy: in the Ministry of Energy Michalis Diamianou and in the Ministry of Labour Marinos Mousiouttas.
CNA
