CBC forecasts slower Cyprus growth and higher inflation amid Middle East conflict

Nicosia, Cyprus. The Central Bank of Cyprus expects economic growth to slow in 2026 as the Middle East conflict weighs on tourism and investment, while inflation is projected to rise sharply, according to its September forecasts released on Thursday.

The CBC projected GDP growth of 2.9 per cent in 2026, compared with 3.8 per cent in 2025, before accelerating to 3.1 per cent in both 2027 and 2028.

Economic projections

The forecasts were prepared by the CBC’s Division of Economic Analysis and Monetary Policy and cover GDP, unemployment, inflation and core inflation, while assessing the main risks to the economic outlook.

The September projections incorporate the effects of the ongoing Middle East conflict, including higher international oil prices, elevated refining margins and increased geopolitical uncertainty.

Impact of conflict

The CBC said these factors were expected to directly affect the Cyprus economy, particularly through energy prices, tourism and non-residential private investment.

Its baseline scenario assumes the conflict will continue until the final quarter of 2026, followed by a gradual de-escalation.

Domestic demand and investment

Despite the external shocks, the CBC said the economy had continued to demonstrate resilience and that domestic demand was expected to support growth throughout the forecast period.

Private consumption is expected to remain positive as households benefit from higher real disposable incomes, although inflationary pressures continue. The labour market is also expected to provide support.

Large residential and non-residential investment projects are expected to continue despite geopolitical uncertainty. The CBC said their long completion horizons, together with the expectation that disruption would be temporary, meant they were not expected to be cancelled.