Dorita Yiannakou
Cyprus’ economy continues to show steady growth, underlining its flexibility and resilience in the face of external shocks such as the ongoing Russia-Ukraine war and recent conflicts in the Middle East. State revenues reached a total of €36.48 billion in 2025, with tourism, shipping and retail trade driving the bulk of economic activity and contributing most to GDP.
It is no coincidence that the biggest increases in turnover were recorded in trade, as well as in hotels and restaurants. Professional, scientific and technical activities also made a positive, though smaller, contribution, while construction and manufacturing led gains in the secondary sector.
Looking ahead, the Finance Ministry expects growth between 2026 and 2028 to be largely driven by trade, transport, hotels and restaurants, as well as information and communication activities. Financial and professional services, along with real estate management, are also expected to contribute, albeit to a lesser extent. Construction and manufacturing are projected to remain key pillars supporting growth from the secondary sector.
Still, current conditions suggest that these growth forecasts may shift, as key sectors of the economy are coming under increasing pressure. Tourism, in particular, has already taken a hit, with early signs indicating that expectations for another record year may not be met. At the same time, retail and hospitality businesses in strictly tourist areas are also struggling. Industry stakeholders say the final balance between gains and losses will largely depend on how the summer season unfolds, especially the pace of tourist arrivals.
Growth holds, for now
Cyprus maintained strong growth rates in 2025, with GDP expanding by 3.8% for the year and by 4.5% in the fourth quarter, according to updated data released by the Statistical Service.
In real terms, GDP rose by 3.8% in 2025, while in current prices, it increased by 4.9%, reaching €36.48 billion. Growth was mainly supported by information and communication technologies, hotels and restaurants, trade, and construction.
On a quarterly basis, the economy grew by 4.5% in the fourth quarter of 2025 compared with the same period in 2024 and by 1.4% compared with the third quarter of the same year. Construction stood out with a 9.4% increase, followed by information and communication at 8% and trade and tourism at 7.2%.
On the spending side, private consumption rose by 3.4% and public consumption by 4.4% year-on-year in the fourth quarter, helping sustain economic activity. In contrast, gross fixed capital formation dropped sharply by 15.2%, mainly due to fluctuations in high-value investments such as ships and aircraft.
The external sector also contributed positively, with exports of goods and services increasing by 2.9% and imports falling by 4.2%, boosting overall GDP.
Pressure points emerge
Tourism, one of the most important pillars of Cyprus’ economy, is particularly sensitive to issues of security and stability. The country’s proximity to conflict zones is already weighing on demand, leading to fewer bookings and even cancellations, especially from key markets like Israel and the United Kingdom.
If tensions in the Middle East escalate further, tourism revenues could decline, putting broader economic activity under strain. Hoteliers are already reporting significant losses in March, April and May, with the summer season now seen as critical.
At the same time, retail and hospitality sectors, including accommodation, dining, events, conferences and entertainment, are also seeing a downturn in purely tourist areas. Industry insiders describe the current situation in these regions as “quiet,” with activity noticeably subdued.
Geopolitical tensions are also pushing up energy prices, directly impacting the cost of living. Higher electricity and fuel costs are fueling inflation and eroding households’ purchasing power. This, in turn, leads to reduced consumption and lower tax revenues, creating a cycle of economic pressure. Consumers are already facing sharp increases in both fuel and energy prices, driven by a mix of geopolitical instability, supply chain disruptions and shifting demand patterns.
Shipping steady, investment opportunities emerge
In shipping, the picture is more complex. Increased risks along key maritime routes, such as the Red Sea, are causing delays and raising transport costs. While this puts pressure on the sector, it is not expected to lead to major losses, but rather to adjustments in how the industry operates.
At the same time, crises often bring offsetting opportunities. As an EU member state, Cyprus may attract businesses seeking to relocate from unstable regions such as Iran, Lebanon, Gulf countries, Iraq, Syria, Jordan and Turkey. In periods of global uncertainty, investors tend to look for safe havens, and Cyprus could position itself as one, boosting demand for real estate and strengthening investment flows, particularly in urban and business centers.
A year of uncertainty, not collapse
Overall, 2026 is shaping up to be a year of heightened uncertainty, but not necessarily one of deep crisis, market analysts say. The impact is uneven across sectors, reshaping the economic landscape.
The Cypriot economy is not collapsing, it is evolving. As reliance on tourism becomes increasingly risky, services and technology are taking on greater strategic importance, gradually redefining the country’s growth model.
