Economic Outline

Economic Indicators

Cyprus is an open free-market economy primarily based on services. After enduring the impact of the global financial crisis and the exposure of the national banking system, the country's economy underwent a recovery in recent years, largely driven by domestic demand and tourism until the abrupt halt caused by the COVID-19 pandemic. Real GDP growth remained resilient in 2024, expanding by 3.4% (CyStat), mainly driven by private consumption. Investment, excluding the volatile registration of ships and aircraft, grew, supported by positive sentiment in the construction sector. Strong foreign demand for services, particularly in sea transport and tourism, contributed to solid export performance. This positive trend is expected to persist, with economic growth projected at 3.1% in 2025 and 3% in 2026 (IMF). Investment will likely continue to benefit from Recovery and Resilience Facility funds, while easing financial conditions should provide additional support. Export performance is anticipated to remain strong, driven by rising tourist revenues and a dynamic services sector, particularly in ICT. The ongoing recovery in household purchasing power, supported by rising nominal wages and declining inflation, is expected to further boost private consumption.

The country has a solid fiscal position: according to CyStat, Cyprus recorded a fiscal surplus of EUR 1.51 billion (4.5% of GDP) in 2024, a significant increase from EUR 631.5 million (2.0% of GDP) in 2023. This was driven by higher revenue, which grew by EUR 1.07 billion (+7.8%) to reach EUR 14.84 billion, while total expenditure increased modestly by EUR 197.4 million (+1.5%) to EUR 13.33 billion. The budget surplus is expected to persist but decline to 2.7% of GDP in 2025 and 2026, as tax revenue growth slows in line with income and consumption trends, while tax arrears collection stabilises. Meanwhile, rising expenditure in 2025 will be driven mainly by ad hoc public wage increases approved at the end of 2024 and new measures to support housing. The debt-to-GDP ratio has been following a downward trend in recent years and is expected to continue declining from 70.6% of GDP in 2024 to 59.1% in 2026, largely due to primary surpluses and continued strong nominal GDP growth. The Consumer Price Index (CPI) recorded an increase of 1.8%  in 2024 (CyStat) and is projected to remain around 2% over the forecast period, driven by the fading impact of base effects, particularly for food, and lower domestic energy prices. However, services inflation is expected to stay high, fueled by strong nominal wage growth and rising demand, especially in tourism.

The unemployment rate stood at 4.6% at the end of Q4/2024 (males 4,3%, females 4,9%), the lowest level in the last 15 years. Skills mismatches and labour market slack remain minimal, partly due to an inflow of foreign workers attracted by government incentives for multinational businesses to establish their base in Cyprus. The unemployment rate is expected to continue declining, reaching 4.5% by 2026, according to the EU Commission.  Despite recent improvements in the service, skilled industry, and agricultural sectors, 16.7% of the population remains at risk of poverty or social exclusion (CyStat). The IMF estimated Cyprus’ GDP per capita (PPP) at USD 59,857 in 2024.

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