The Governor of the Central Bank of Cyprus (CBC), Christodoulos Patsalides, has issued a warning that escalating global uncertainty and newly imposed trade tariffs could cause a deviation from the Bank’s current economic baseline scenario for 2025.

In a public statement released Monday on the CBC’s official website, Patsalides emphasized that global economic uncertainty is not only persisting, but worsening due to the rise of new, complex risks.

“Under these conditions, the likelihood of deviation from the baseline scenario is increasing,” he stated.

The CBC’s baseline macroeconomic projections—prepared prior to recent tariff-related developments—currently estimate GDP growth slightly above 3% for the 2025–2027 period, with inflation expected to gradually return to the 2% medium-term target.

However, the Governor warned that newly implemented U.S. tariffs on the EU and other countries, along with expected retaliatory measures, are likely to impact Cyprus through indirect economic channels.

“The CBC is currently analyzing revised scenarios as part of the Eurosystem, with results expected to be published in June 2025,” he said.

Beyond trade-related concerns, Patsalides highlighted additional rising risks, including cybersecurity threats, geopolitical instability, and the growing cost of new EU defense initiatives, which could burden national budgets.

He also identified digital assets as a threat to financial stability and emphasized climate change as a significant long-term challenge. Referencing international assessments, he warned of stalled progress in reducing inflation, stagflation risks, and a growing probability of extreme financial scenarios.

“Cyprus, as a small and open economy, must continue to implement prudent and disciplined policies to strengthen its resilience to external shocks,” Patsalides noted.

“With steady and forward-looking navigation, our economy can seize new opportunities and enhance its position in the European and global economic landscape.”

In this environment, the Governor emphasized the importance of building safety buffers across all sectors, with a particular focus on the public and banking sectors to safeguard stability and support growth.

On the fiscal front, he underlined the importance of keeping public debt reduction efforts on track, with a strategic approach to control inflexible expenditures and rationalize public sector wages.

“The only reliable way to strengthen resilience against potential revenue shortfalls during downturns is to enhance the flexibility of public spending,” he stated.

Patsalides also stressed the urgency of accelerating digital transformation to boost productivity and attract investment. He called for a focus on sustainable investment, export-led production, and structural reforms to improve competitiveness.

Regarding the banking sector, he noted the need to preserve bank resilience and their capacity to support the real economy. He urged financial institutions to maintain strong capital positions, manage operational costs, and exercise caution on dividend policies.

Furthermore, he emphasized the importance of managing reputational risks, warning that negative developments could erode public confidence, cause capital outflows, or trigger credit rating downgrades.

Patsalides concluded by stating that Cyprus has demonstrated adaptability in difficult times, but current global conditions require even greater foresight.

“In today’s unstable and shifting international environment, foresight, prudence, and flexibility are fundamental tools for achieving sustainable growth,” he said.

He also added that in the digital era of artificial intelligence, adaptability must be both rapid and continuous.