Nicosia, Cyprus. S&P has affirmed Cyprus’ credit rating and kept its outlook positive, saying the decision was made despite the ongoing conflict in the Middle East. The agency said it expects the economy to withstand fallout from the conflict.
Rating and outlook unchanged
S&P left Cyprus’ credit rating unchanged at “A-/A-2” for long-term and short-term debt, maintaining a “positive” outlook.
Growth forecast supported by domestic demand
S&P forecast that Cyprus’ economy will grow by about 2.8% this year, stating that domestic demand will become a more prominent driver of growth. It said private consumption is expected to benefit from higher real wages, while private investment is expected to be supplemented by public investments.
Energy prices seen as key pressure point
The agency said energy prices represent the main pressure point for Cyprus’ economy in the current geopolitical situation, citing the country’s dependence on oil imports. It added that energy costs in Cyprus are already among the European Union’s highest.
Medium-term outlook and risks
S&P said it expects Cyprus’ gross domestic product to grow at an average rate of 2.8% per year between 2026 and 2029. It also said a healthy labour market, characterised by high employment and real wage growth, is expected to support private consumption.
S&P said this is expected to provide a buffer against potential negative spillover effects from the Middle East conflict, which could affect Cyprus’ tourism and shipping sectors, as well as oil prices, though it currently views these effects as relatively short term.
Current account deficit projection revised
S&P said it now expects Cyprus’ current account deficit to widen to around 9% of GDP this year, driven by the Middle East conflict and Cyprus’ reliance on energy imports. It previously expected the deficit to hover slightly above 7% of GDP.
The agency said the current account deficit is expected to normalise back to around 7% of GDP between 2027 and 2029.
How do you think higher energy prices could affect Cyprus’ economy this year?
