Recent developments show strong growth in Cyprus, but rising inflation and future investments are critical for sustainability.
Recent Developments and Outlook: Growth remained strong in 2025, supported by robust domestic demand and services exports. Inflation fell last year, reflecting favorable supply-side developments. But following the war in the Middle East, inflation has rebounded on higher energy prices; activity is expected to moderate. Since labor market tightness limits further gains from employment, sustaining longer-term growth will depend on investment and productivity enhancing reforms—especially improving judicial efficiency, strengthening skills and digital/AI readiness, and advancing energysector reforms and infrastructure.
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International Monetary Fund. European Dept. (2026) studied this question.
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