Nicosia, Cyprus. The Central Bank of Cyprus on Friday revised down its forecasts for economic growth in 2026 and 2027, citing the continuing war in the Middle East. It said risks for the 2026-2028 period remain tilted toward weaker growth and higher inflation.
Updated forecasts
Under its June 2026 projections, the central bank lowered its forecast for gross domestic product growth in 2026 by 0.2 percentage points to 2.5 per cent and reduced its estimate for 2027 by 0.1 percentage points to 2.9 per cent compared with its projections published in March.
The CBC also said it now expects unemployment to rise by 0.1 percentage points to 4.6 per cent in 2026.
At the same time, it forecast that inflation will increase by 0.5 percentage points to 3.2 per cent in 2026. The central bank maintained its March forecast for core inflation, which excludes volatile energy and food prices, at 2.3 per cent for 2026.
Baseline scenario
In its projections for Cyprus’ main macroeconomic indicators covering the period from 2026 to 2028, the central bank said its baseline scenario assumes that the conflict will continue until the final quarter of 2026 before gradually easing.
“The probabilities of deviations from the baseline scenario for the period 2026-2028 are assessed overall as being tilted to the downside for GDP and to the upside for inflation,” the CBC said.
Economic impact
According to the central bank, the medium-term effects on the Cypriot economy will depend on the duration and intensity of the war.
“The June 2026 projections incorporate the economic impact of the ongoing war in the Middle East,” the CBC said.
It added that the continuing conflict in the Middle East, the significant increase in international oil prices and geopolitical uncertainty are expected to have an immediate negative effect on the Cypriot economy, particularly on tourism, shipping, construction and the real estate sector, which depend heavily on inflows of foreign direct investment.
