Fiscal Council warns of risks despite Cyprus’ economic resilience

Nicosia, Cyprus. Cyprus has remained resilient to external shocks, with economic growth and low unemployment, but faces underlying risks, the Fiscal Council said on Thursday as it presented its 2026 interim report.

Growth and public finances

Council chairman Andreas Charalambous said GDP grew by 3.8 per cent in 2025 and is forecast to grow by 3 per cent this year, a rate he described as “very satisfactory under the circumstances”.

The budget surplus stood at 3.4 per cent in 2025, while public debt fell to 55 per cent of GDP, below the 60 per cent threshold. Unemployment was around 4.4 per cent last year and dropped to 3.6 per cent in the first half of this year.

Migration and productivity

The council attributed the economy’s resilience partly to migration inflows and foreign corporations establishing operations in Cyprus. It said these companies create jobs, generate income and consumption, support economic activity and increase services exports.

Migrants now account for more than 20 per cent of the population, and possibly as much as 30 per cent, the council said. At the same time, an ageing population has reduced the number of working-age people. Future growth therefore cannot depend on further employment gains and will require higher productivity, an area in which Cyprus performs poorly, it said.

Inflation and energy costs

Inflation rose considerably in 2026, disproportionately affecting low-income households. Charalambous said that while most inflation is imported and linked to geopolitical events, Cyprus’ slow transition to green energy is also a factor.

“Reliance on conventional forms of energy keeps energy costs high, rendering the economy more susceptible to international crises.”