Nicosia, Cyprus. The European Commission has forecast a slowdown in Cyprus’ economic growth alongside rising inflation, citing a fresh energy shock linked to the Middle East conflict. In its Spring 2026 Economic Forecast, the commission said the impact is expected to be felt in the short term through higher inflation and increased uncertainty.
Inflation outlook
Headline inflation in Cyprus is projected to rise to 3.6 per cent in 2026 before easing to 2.2 per cent in 2027, reflecting a surge in energy prices followed by gradual normalisation.
Growth forecasts
Economic growth is expected to moderate, with real GDP forecast to expand by 2.3 per cent in 2026 and 2.7 per cent in 2027, down from 3.8 per cent growth recorded in 2025. The commission said Cyprus entered the crisis on a strong footing supported by solid economic performance in 2025.
Drivers of activity and consumption
The commission attributed the earlier strong performance to robust private consumption and services exports, particularly in the ICT sector and tourism, alongside rising investment driven by construction activity. Private consumption is expected to remain the main driver of growth but to slow as inflation erodes real disposable incomes and inflows of foreign workers moderate.
Wages, tourism and services exports
Automatic wage indexation is expected to support household incomes, helping to stabilise spending despite rising prices. The report pointed to domestic tourism as a partial buffer, with local demand expected to strengthen in 2026 even as international arrivals remain sensitive to geopolitical developments.
External demand and household behaviour
Tourism exports are projected to weaken due to the conflict, while other service exports such as ICT, financial and business services are expected to remain resilient. The commission said expectations that the conflict may be short-lived could limit precautionary saving, encouraging households to maintain consumption levels.
How do you expect higher energy prices to affect your household spending this year?