Newsroom
Cyprus entered 2025 with strong economic momentum, building on real GDP growth of 3.4% in 2024. Despite an increasingly unstable global environment, the economy demonstrated notable resilience, maintaining robust expansion, improving fiscal indicators, and advancing major reforms and strategic agreements.
Growth and macroeconomic outlook
The Cypriot economy continued to grow at a solid pace throughout 2025, recording around 3% growth in the first quarter and an estimated 3.1% for the full year. Inflation remained subdued at below 1%, while unemployment fell to approximately 4.6%, a level consistent with near-full employment.
Medium-term projections from the Ministry of Finance remain favorable, with growth expected to average close to 3% through 2028. Public debt is forecast to decline steadily, reaching just over 43% of GDP by the end of that period, reflecting strong fiscal performance and disciplined budget management.
Global uncertainty and external risks
The positive domestic performance unfolded against a challenging international backdrop. A renewed escalation of trade tensions following the imposition of broad tariffs by the United States increased concerns about inflation and global slowdown. At the same time, ongoing conflicts in Ukraine and the Middle East, along with climate-related risks, continued to weigh on global economic confidence.
Despite these pressures, Cyprus benefited from resilient services exports and strong domestic demand. Interest rate cuts by the European Central Bank, three reductions of 25 basis points during the year, also supported economic activity.
Energy developments and strategic agreements
Energy emerged as a central pillar of economic and geopolitical strategy in 2025. Cyprus strengthened cooperation with Egypt through agreements enabling the development and commercialization of offshore natural gas resources. Key milestones included progress on the Aphrodite field and agreements covering hydrocarbons in Block 6, which hosts the Cronos, Zeus, and Calypso discoveries.
Further positive signals came from new drilling results in Block 10, confirming a substantial column of high-quality natural gas. Cyprus also advanced regional cooperation by signing an Exclusive Economic Zone delimitation agreement with Lebanon and exploring prospects for electricity interconnections.
At the same time, public debate intensified over major infrastructure projects, including the Cyprus–Greece electricity interconnector and delays related to the LNG regasification terminal at Vasilikos.
Reforms, banking consolidation, and market modernization
A major domestic priority in 2025 was tax reform. The government introduced a comprehensive package that was approved by Parliament in December and will take effect in 2026. Key measures include raising the tax-free income threshold, revising tax brackets, and increasing the corporate tax rate to 15%.
Another landmark development was the resolution of the long-standing Cost of Living Allowance (COLA) issue. After prolonged negotiations and labor unrest, a permanent agreement was reached, extending coverage to tens of thousands of low-paid workers by linking COLA to the minimum wage.
The banking sector also underwent significant restructuring. The merger between Hellenic Bank and Eurobank was completed, while Alpha Bank Cyprus agreed to acquire AstroBank’s banking operations. These moves further consolidated the sector and strengthened financial stability.
Market modernization advanced with the launch of the Competitive Electricity Market and the full rollout of instant payments within the SEPA system, improving efficiency and transparency.
Ratings upgrades and international confidence
International confidence in the Cypriot economy strengthened throughout the year. Credit rating agencies upgraded Cyprus’s ratings or outlooks, citing strong growth, falling debt, and sound fiscal management, while acknowledging lingering external and geopolitical risks.
Both the International Monetary Fund and the European Commission revised their growth forecasts upward, with particularly optimistic projections for 2025.
Social challenges and extraordinary events
The year was not without setbacks. Severe wildfires in the Limassol mountain region caused significant damage, prompting government compensation measures and emergency support for affected workers and households. Labor disruptions at the Port of Limassol also highlighted ongoing social and operational challenges.
Overall assessment
By the end of 2025, Cyprus had reinforced its reputation as a resilient and reform-oriented economy. Strong growth, improving public finances, progress on energy strategy, and key structural reforms helped offset global uncertainty and domestic challenges, positioning the country on a stable path heading into 2026.
