The Central Bank of Cyprus (CBC) forecasts that GDP growth will reach 3.5% in 2025, compared with a revised 3.9% in 2024, while growth is expected to average 3% annually during 2026–2028.

The CBC published its December 2025 macroeconomic forecasts for the period 2025–2028, covering GDP, unemployment, inflation and core inflation. The outlook reflects continued strength in domestic demand, driven mainly by private consumption, supported by rising real household income and a resilient labour market.

Investment activity is also expected to support growth, particularly large non-residential private investments linked to digital and green infrastructure and projects under the Recovery and Resilience Plan, while residential investment is projected to contribute to a lesser extent. Despite ongoing global trade uncertainty, no significant negative impact on consumption or investment is anticipated, given Cyprus’ limited goods trade with the United States.

Net exports are expected to benefit mainly from the technology sector, financial and professional services, and, to a lesser degree, tourism, with rising arrivals from the UK, Israel and EU countries. Shipping is also expected to continue contributing positively to growth.

Compared with the September 2025 forecasts, GDP growth for 2025 has been revised upwards by 0.2 percentage points, reflecting stronger-than-expected performance in technology, trade, tourism and financial services.

The labour market is expected to remain strong, with unemployment declining to 4.5% in 2025 from 4.9% in 2024 and stabilising at similar levels during 2026–2028, indicating conditions of near full employment.

Inflation, based on the Harmonised Index of Consumer Prices, is projected to fall sharply to 0.8% in 2025 from 2.3% in 2024, mainly due to lower energy prices and declining prices of non-energy industrial goods. Inflation is expected to rise gradually to 1.7% in 2026, 2.2% in 2027, and 1.9% in 2028, partly reflecting higher food prices and the introduction of a carbon tax on fuels.

Core inflation is forecast to average around 1.9% during 2025–2028, easing compared with 2024, supported by moderating wage growth and weaker price pressures in industrial goods.

Risks to GDP growth are assessed as slightly tilted to the downside, mainly due to global trade uncertainty, while risks to inflation are considered slightly tilted to the upside, linked to wage pressures, tax reform effects and profit margins. Potential downward inflation risks stem from lower energy prices and improved global supply conditions, the CBC concludes.