European Stability Mechanism annual report 2025 on Cyprus economy

The European Stability Mechanism (ESM) published its 2025 report, highlighting Cyprus's fiscal consolidation and economic stabilization. In 2025, Cyprus recorded a GDP growth rate of 3.8% and inflation dropped to 0.9%. Growth was primarily driven by strong domestic demand and performance in tourism and service exports. Public debt continued its downward trajectory, reaching 55% of GDP, a significant decrease from the 114% peak in 2020. The banking sector maintained high profitability with non-performing loans falling to 3.2%, accompanied by two major cross-border acquisitions. The ESM noted that the primary budget surplus reached 4.5% of GDP, lower than the previous year due to faster expenditure growth compared to revenues. Despite these positive indicators, the report identified medium-term challenges including population aging, climate change, energy security, and water supply resilience. The ESM urged the government to accelerate reforms focused on the green and digital transition to maintain growth momentum.