CypERC raises Cyprus 2026 growth forecast to 3.2 per cent despite rising inflation

Nicosia, Cyprus. The Economics Research Centre (CypERC) of the University of Cyprus has revised its 2026 growth forecast for the Cypriot economy up to 3.2 per cent from 2.7 per cent, according to a report it released in October. The centre said firmer economic activity and better business confidence outweighed the inflationary pressures linked to the conflict in the Middle East.

Growth outlook

CypERC expects growth to slow from 4.8 per cent in 2025 to 3.2 per cent in 2026 and 3.1 per cent in 2027. Higher prices and tighter monetary conditions are projected to weigh on activity in the coming quarters. The new 2026 figure is 0.5 percentage points above the centre’s July estimate, while the 2027 projection has not changed.

Reasons for the revision

The upgrade reflects growth in the second quarter of 2026 that was stronger than anticipated. It also draws on positive third-quarter developments, including improved economic confidence, low unemployment and continued growth in new housing loans.

Geopolitical risks

The research centre cautioned that the outlook remains exposed to geopolitical developments. It said the Middle East conflict is intensifying inflationary pressures and raising the risk that growth will fall short of expectations.

Inflation forecast

Inflation is projected to jump from 0.1 per cent in 2025 to 3.1 per cent in 2026, then ease to 2.3 per cent in 2027. These forecasts are 0.1 and 0.2 percentage points higher, respectively, than those released in July. The centre linked the increase to rising international oil prices, strong domestic economic activity and persistently low unemployment.

Second-quarter performance

Cyprus’ economy again expanded faster than the European Union average in the second quarter of 2026, despite inflationary pressures tied to the Middle East conflict. Real gross domestic product (GDP) rose by 3.3 per cent year-on-year, up from 3 per cent in the first quarter. Real gross value added increased in every economic sector, and growth picked up in most industries compared with the previous quarter.