Cyprus growth remains strong, but energy costs and interest rates threaten household budgets

Nicosia, Cyprus. Cyprus is entering autumn with one of the EU’s strongest growth rates, but higher energy costs, rising interest rates and weaker external demand could limit the benefit to households, CFA Society Cyprus board member Kyriacos Inios said.

Growth outlook

Real GDP grew by 3.8 per cent in 2025, compared with 1.5 per cent in the EU. The European Commission’s May forecasts put growth in Cyprus at 2.3 per cent in 2026, against 1.1 per cent for the EU.

Inios said Cyprus remained in a strong position, but the growth gap was narrowing and the broader slowdown was affecting the country. With the ECB raising rates again, he said, “the next few months will show how much of the growth reaches household budgets”.

Energy and inflation

Inios said the war in the Middle East had pushed up oil prices, increasing the cost of goods transported by road or ship. Cyprus is particularly exposed: net imports covered 87.7 per cent of its energy needs in 2024, down from around 92 per cent in 2022 but well above the EU average of 57.2 per cent.

“When oil goes up abroad, it shows up quickly at the pump, in production costs and on the supermarket shelf,” he said.

Harmonised inflation rose from 1.5 per cent in March to 4.4 per cent in July, compared with 3.0 per cent in the EU. The August flash estimate reached 5.2 per cent, against 3.3 per cent in the euro area, marking a fourth consecutive monthly increase.

Inios cited the Central Bank’s assessment that higher oil prices linked to the conflict and restrictions in the Strait of Hormuz had contributed to the rise. Petroleum products in the national consumer price index were 20.3 per cent more expensive in August than a year earlier.