The Central Bank of Cyprus (CBC) has released its definitive year-end projections, painting a picture of an economy that remains on a steady climb despite global headwinds. According to the December 2025 report, Cyprus is expected to see its GDP expand by 3.5% in 2025, a slight moderation from the revised 3.9% growth recorded in 2024.
Domestic Demand Fuels the Expansion
The primary engine of this growth continues to be robust internal demand. The CBC attributes this momentum to two key factors:
-
Rising Disposable Income: Real household earnings are increasing, giving consumers more purchasing power.
-
Private Consumption: High levels of spending are supported by a resilient job market that has successfully withstood external shocks.
Looking further ahead, the CBC expects the economy to settle into a stable growth rhythm of 3% annually between 2026 and 2028.
Labor Market: Reaching “Full Employment”
One of the most significant highlights of the forecast is the continued strengthening of the labor market. Unemployment is projected to fall to 4.5% in 2025, down from 4.9% last year.
-
Positive Indicators: This decline aligns with the European Commission’s recent Economic Surveys, which show high employment expectations and a consistent drop in registered jobseekers.
-
The 4.5% Threshold: Economists at the CBC believe unemployment will stabilize at this 4.5% mark through 2028, a level effectively considered “full employment” within the context of the Cypriot economy.
Inflation: A Dramatic 2025 Cooling
Inflation (HICP) is set to undergo a remarkable transformation, plummeting to just 0.8% in 2025 from the 2.3% seen in 2024. This sharp deceleration is being driven by several unique global and regional factors:
-
Deflationary Pressures: A cooling in both energy and non-energy industrial prices is the main driver.
-
Currency Impact: The euro’s appreciation against the US dollar has effectively lowered the cost of imports.
-
The “China Effect”: A diversion of low-cost Chinese imports into the EU market has placed significant downward pressure on consumer prices in Cyprus.
While prices are expected to stay low in the immediate term, the CBC warns of a gradual return toward 2% inflation by 2027 as food prices normalize and energy deflation fades.
Looking Forward: Forecast Summary (2025–2028)
| Year | GDP Growth (%) | Unemployment (%) | Inflation (HICP) (%) |
| 2024 (Revised) | 3.9% | 4.9% | 2.3% |
| 2025 (Forecast) | 3.5% | 4.5% | 0.8% |
| 2026 | 3.0% | 4.5% | 1.7% |
| 2027 | 3.0% | 4.5% | 2.2% |
| 2028 | 3.0% | 4.5% | 1.9% |
Source: Stockwatch.com.cy