Filenews 18 January 2026 - by Andreas Charitou
2025 strengthened the stability and dynamics of the Cypriot economy, a collective acquis with significant value for the country's future. The challenge of 2026 is to translate this progress into greater social performance.
In 2025, the Cypriot economy recorded a remarkable macroeconomic performance. The growth rate of the economy (3.4%) exceeded the European average (1.4%) and, despite the changing international environment, improvements were noted in indicators of fiscal balance and stability.
This progress has been achieved in an environment of intense international challenges, from climate threats and geopolitical confrontations to trade tensions such as the imposition of tariffs, the rapid evolution of artificial intelligence and migration.
These results highlight a culture of institutional cooperation and responsibility: government policies, parliamentary decisions, the contribution of social partners, the adaptability of businesses and the overall effort of society.
The two realities
In a small economy like the Cypriot one, macroeconomic stability is a national asset and in 2025 it was significantly strengthened.
At the same time, a part of households feels that the purchasing power of their wages is insufficient to meet their daily obligations.
But is it a contradiction for these two realities to coexist? The answer is no, because macroeconomic indicators reflect the country's economy and not the experience of each citizen affected by disposable income, changes in the prices of basic goods, housing costs and private debt.
And yet, prosperity is not only the improvement in the growth rate of the economy or improved macroeconomic indicators, as we often tend to measure it in modern societies. The ancient Greek philosophers, among them Socrates, Plato, Aristotle, did not associate prosperity exclusively with material wealth, but emphasized that every citizen should live with dignity, with access to health, education, housing.
To have moral integrity, to act and live with virtues such as justice and prudence. We don't need to become Stoics, nor philosophers of virtue to make use of this thought. Suffice it to ask a simple, practical question: how can economic progress benefit more citizens?
According to assessments by the European Commission, in 2025 Cyprus further improved its macroeconomic stability and resilience. Public macrofinances remained strong, with a fiscal surplus of 3.3% of GDP (European Union (EU): -3.3% deficit), and a reduction in public debt to 56.4% of GDP in 2025 (EU: 80.7% in 2024). Also, inflation decreased to a relatively low level (0.2%) and unemployment fell to 4.3% (EU: 6.0%), at levels close to full employment (European Commission – Autumn 2025 Forecast for Cyprus, Eurostat, January 2026, for EU).
The distribution of wealth
But why don't all citizens experience the same similar improvement and some remain vulnerable? In 2024, the 'at-risk-of-poverty or social exclusion' index in Cyprus was 17.1% (EU: 21%) (Eurostat, EU-SILC – AROPE, April, 2025 and Statistical Service of Cyprus (CYSTAT), Survey on Income and Living Conditions – Risk of poverty 2024 (AROPE), March 2025).
This is a challenge that concerns all European societies and requires sustained, targeted political action. A key reason is that macroeconomic indicators reflect the country's economy rather than the average citizen. When the distribution of wealth is unequal, overall progress does not automatically translate into a balanced increase in well-being.
Indicatively:
– Statistics from Bestbrokers show that the distribution of wealth in Cyprus is not equal. The 1% (10%) of the rich in our country owned 33.3% (66.7%) of the wealth in 2023, compared to 12.8% (50.7%) in 2000, which suggests that the rich have become richer (Bestbrokers – Wealth Inequality in the 21st Century, July 2025).
– Second, the growth rate may be due to high value-added activities (e.g. financial services, tourism, investment, information and communication technologies), while a significant number of workers are employed in lower-paid sectors. Thus, the economy improves overall, but the increase in disposable income is not evenly distributed among all citizens.
Third, housing and private debt have a significant impact on living standards. The rise in rents outpaced the wage improvement, putting pressure on the middle class. Loan servicing reaches 20.5% of income compared to 12.8% in the Eurozone, reducing the saving margin and improving the quality of life (European Commission – debt-service-to-income indicators/estimates, March 2024).
Social performance of development
The key question is how do we enhance the social performance of growth? Some suggestions that can be complementary are:
– First, targeted, not horizontal income support for low-income earners and households based on disposable income and household composition, as well as immediate adjustment of allowances – the 2026 tax reform moved in this direction (Ministry of Finance, 2025).
– Second, because inflation disproportionately affects low-wage earners, any single Automatic Indexation (ATA) widens inequalities.
– Thirdly, further strengthening of competition and transparency in prices is needed, through intensive controls.
– Fourth, housing policy with an emphasis on increasing the supply of affordable housing, utilizing public land with social criteria and accelerating procedures.
Fifth, in order to further reduce private debt and strengthen the disposable income of households, additional transparency and information for borrowers is needed, a direction already promoted by the Central Bank of Cyprus (CBC).
In conclusion, 2025 strengthened the stability and dynamics of the Cypriot economy, a collective acquis with significant value for the country's future. The challenge of 2026 is to translate this progress into greater social performance. This is where real prosperity is judged. And success remains collective and presupposes the synergy of the state, institutions, social partners, businesses and citizens.
* Ph.D., CMA (USA), FCPA (Aust) Professor of Finance, University of Cyprus http://www.ucy.ac.cy/~charitou.aspx
http://ssrn.com/author=33395
