CBC revises growth forecast upwards to 3.2% for 2025

The Central Bank of Cyprus (CBC) has revised its forecast for Cyprus’ GDP growth rate for 2025 upwards by 0.1% to 3.2%, compared to its December 2024 projections. At the same time, it has maintained its forecast for GDP growth in the period 2026-2027 at 3.1% annually.

In its March 2025 projections for Cyprus’ key macroeconomic indicators for the years 2025-2027, the CBC revised its unemployment rate forecast for 2025 downward by 0.1% to 4.7%.

Additionally, it slightly revised its inflation forecast for 2025 upwards by 0.2% to 2.1%. The forecast for core inflation, which excludes energy and food, was also revised upwards by 0.2% to 2.2% in 2025.

The CBC highlighted that “the projected GDP growth is mainly due to the expected further increase in domestic demand and, to a lesser extent, external demand, taking into account the heightened uncertainty in the international geopolitical and trade environment”.

It stated that domestic demand is expected to be supported by rising private consumption, driven by an increase in households’ real disposable income and the continued resilience of the labor market. Despite an expected slowdown in private consumption growth in the coming years, it is anticipated to remain a key driver of economic development.

Significant contributions to domestic demand are also expected from ongoing large-scale private non-residential investments, infrastructure projects supporting digital and green development, and other reform initiatives under the Recovery and Resilience Plan.

The CBC noted that, according to the latest available data, “there has been no significant negative impact on investments either from the hostilities in the Middle East—via reduced demand—or from the effects of restrictive monetary policy, which has weakened due to interest rate reductions with a delayed impact”.

It also stated that the construction sector continued to be a significant driver of economic growth in 2024.

For the period 2025-2027, GDP growth is expected to be further supported by net exports, thanks to positive developments in the technology sector and increased exports of intellectual property-related services.

Additionally, the CBC pointed out that growth is aided by the rising turnover of financial and professional services, partly due to the diversification of export markets and the continued positive contribution of the shipping sector.

Furthermore, the CBC noted that net exports are bolstered by the positive trajectory of tourism, with a smaller-than-expected loss of Israeli tourists despite the ongoing conflict in the Middle East, as well as the continued diversification of the tourism sector towards high-spending markets.