The Central Bank of Cyprus (CBC) has revised its GDP growth forecast for Cyprus in 2025 upwards by 0.1 percentage points to 3.2%, compared to its December 2024 projections. The forecast for GDP growth in 2026 and 2027 remains unchanged at 3.1% annually.

In its March 2025 macroeconomic projections for the period 2025-2027, the CBC also adjusted its unemployment rate forecast for 2025 downward by 0.1 percentage points to 4.7%. Additionally, inflation for 2025 was slightly revised upwards by 0.2 percentage points to 2.1%, with core inflation (excluding energy and food) also rising to 2.2%.

The CBC attributed the projected GDP growth primarily to the expected increase in domestic demand, alongside a smaller contribution from external demand. It noted that this outlook considers ongoing geopolitical and trade uncertainties worldwide.

Domestic demand is expected to be driven by rising private consumption, supported by an increase in households' real disposable income and a strong labor market. Although private consumption growth is projected to slow in the coming years, it is still anticipated to be a key driver of economic expansion.

Additionally, domestic demand will benefit from large-scale private non-residential investments, infrastructure projects promoting digital and green development, and other reform initiatives under the Recovery and Resilience Plan.

The CBC emphasized that, based on the latest data, there has been no significant negative impact on investments despite ongoing hostilities in the Middle East and restrictive monetary policies. It explained that the effects of higher interest rates have been mitigated by subsequent rate reductions, which are expected to have a delayed impact on the economy.

For the period 2025-2027, net exports are also expected to contribute to economic growth, particularly due to positive developments in the technology sector and increased exports of intellectual property-related services.

The CBC further noted that growth will be supported by the expanding financial and professional services sector, benefiting from market diversification and the continued strength of the shipping industry.

Additionally, the tourism sector remains a crucial pillar of Cyprus’ economy, with the CBC highlighting that the loss of Israeli tourists has been smaller than anticipated despite the ongoing Middle East conflict. The sector’s resilience is attributed to Cyprus' successful efforts to attract visitors from high-spending markets, further diversifying its tourism base.