Nicosia, Cyprus. The Central Bank of Cyprus has lowered its growth forecasts for the Cypriot economy for 2026 and 2027, citing the impact of the war in the Middle East and warning that risks remain tilted to the downside.
In its June 2026 economic bulletin, the bank said it now expects GDP growth of 2.5 per cent in 2026, down from 2.7 per cent forecast in March, while growth in 2027 was revised to 2.9 per cent from 3 per cent. The economy is expected to accelerate to 3.1 per cent in 2028.
Revised forecasts
The Central Bank of Cyprus said the relatively limited impact on this year’s forecast reflected the fact that some conservative estimates had already been included in the March projection round.
It said the main downside risks to GDP are linked to the possible non-finalisation or non-implementation of the agreement announced between the United States and Iran.
Baseline scenario and risks
The bank said its baseline scenario had been completed before that announcement and was based on the working assumption that the conflict would continue until the final quarter of 2026 before gradually easing.
According to the bank, if the United States and Iran do not maintain their commitments and the agreement is not implemented, risks would remain around possible fuel shortages, quotas, further disruption to energy and raw material production, and higher-than-expected energy and import prices caused by supply chain problems.
Impact on the economy
The bank said ongoing geopolitical tension, together with the sharp rise in international oil prices, is expected to affect the Cypriot economy through weaker domestic and external demand.
These pressures are expected to be more visible in sectors including tourism, shipping, construction and real estate, particularly because several of them depend heavily on foreign investment inflows.
For 2026, the Central Bank of Cyprus expects net exports to make a negative contribution to growth, mainly because of lower tourism revenues.
At the same time, shipping revenues are also expected to fall as a result of disruption caused by the conflict, while exports of other services are forecast to grow at a slower pace because of the less favourable external environment.