Cyprus’s economy will slow in 2026 and inflation will rise sharply, the Centre for Economic Research at the University of Cyprus has forecast, citing the wars in the Middle East and heightened geopolitical uncertainty.
The centre revised its growth forecasts down by 0.6 percentage points for 2026 and by 0.3 percentage points for 2027 compared to its January projections. It attributed the revision primarily to economic pressures stemming from the escalation of Middle East tensions, as reflected in leading indicators. Monthly data, mainly for March, point to weakening demand — particularly external demand for services — alongside increased uncertainty among businesses and consumers and upward price pressures.
Despite these headwinds, the centre said the strong growth rate recorded in the fourth quarter of 2025, solid public finances and low unemployment are expected to limit the negative impact of recent disruptions, including the Middle East conflict and the foot-and-mouth disease epidemic.
On inflation, the centre forecast a sharp acceleration from 0.1% in 2025 to 2.7% in 2026, before easing to 1.8% in 2027. Compared to its January projections, the inflation forecast has been revised up by 1.9 percentage points for 2026 and by 0.4 percentage points for 2027. The centre attributed the upward revision mainly to rising international oil prices due to the Middle East conflict and sharp increases in domestic food prices during the first quarter of 2026.
The centre said geopolitical tensions and heightened economic uncertainty make the forecasts particularly uncertain, with the main risk being lower growth and higher inflationary pressures than projected.
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