Nicosia, Cyprus. Large private infrastructure investments and rising exports are expected to boost Cyprus’ economic activity between 2026 and 2028, Central Bank of Cyprus (CBC) governor Christodoulos Patsalides said. His comments were included in the CBC’s 2025 annual report.
Outlook and baseline assumptions
The report said the Cypriot economy continues to show positive prospects despite a shifting international environment, including the war in the Middle East. Based on a baseline scenario assuming a gradual de-escalation of the war, inflation is expected to be close to 2 per cent in the medium term, supporting a stable macroeconomic framework for sustainable and balanced growth.
Growth projections for 2026-2028
Referring to the CBC’s March 2026 projections, which incorporate the impact of the Middle East conflict and the outbreak of foot-and-mouth disease in Cyprus, Patsalides said growth is expected to slow to 2.7 per cent in 2026 from 3.8 per cent in 2025. Growth is projected to accelerate to 2.9 per cent in 2027 and 3.1 per cent in 2028.
Domestic demand, investment, and exports
Patsalides said domestic demand is expected to strengthen in 2026-2028, supported by rising private consumption linked to higher real disposable income and a resilient labour market, despite weaker consumer confidence associated with the war. He added that large private investments in infrastructure and rising exports, mainly in technological, financial and professional services, are expected to provide a significant boost to economic activity.
Tourism outlook
The governor said tourism is expected to be negatively affected in 2026 but recover from 2027 onwards.
Inflation path and drivers
Inflation is projected to rise to 2.7 per cent in 2026, mainly due to higher energy prices, supply chain disruptions, and increased global prices of fertilisers and food. It is then expected to ease to 2 per cent in 2027, supported by lower energy and services prices, before rising slightly to 2.2 per cent in 2028, largely due to the implementation of the expanded Emissions Trading System (ETS2), which is expected to increase fuel costs.
Banking sector resilience
Patsalides said the banking sector maintained high resilience in 2025, with strong solvency and liquidity indicators.
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