Nicosia, Cyprus. Cyprus’ economy is expected to slow this year despite remaining resilient to geopolitical pressures, as higher energy prices and lower tourism arrivals weigh on growth, the International Monetary Fund said on Tuesday.
IMF outlook
The assessment was published as part of the IMF’s Article IV Consultation, an annual review of a country’s economic and financial policies, risks and stability.
The IMF said growth is expected to moderate this year as higher energy prices and geopolitical tensions affect real incomes, tourism and confidence.
Growth projections
GDP is projected to slow to around 2.6 per cent this year, from 3.8 per cent in 2025.
Under an adverse scenario involving a continuation of the crisis in the Gulf, growth would fall to 1.7 per cent.
Inflation outlook
Inflation, which declined last year due to favourable energy and goods price developments, has started to rise again as higher energy prices linked to the war in the Middle East feed through.
The IMF said inflation is projected to increase in the near term before easing, while risks remain tilted to the downside due to the possibility of a more prolonged war in the Middle East, tighter global financial conditions and weaker external demand.
The harmonised rate of inflation, which fell to 0.8 per cent in 2025, is expected to rise to 3.5 per cent this year before easing to 1.5 per cent in 2027.
Tourism, public finances and banking sector
The IMF said tourism is showing signs of softening.
It said fiscal performance has remained strong, with continued surpluses and public debt falling below 60 per cent of GDP.
The financial sector was described as sound, with strong capital and liquidity buffers and improving asset quality.
Underlying strengths
Despite the expected slowdown, the IMF said Cyprus’ economy continues to perform strongly, with 2025 growth among the highest in the European Union.
It said the performance was supported by robust domestic demand and strong services exports, particularly ICT and tourism.
The IMF also commended the Cypriot authorities’ fiscal performance, saying it has rebuilt buffers and placed public debt on a firm downward path.
