Central Bank of Cyprus revises 2026-2027 economic growth forecasts downward

The Central Bank of Cyprus (CBC) has lowered its GDP growth forecast for 2026 to 2.5% and for 2027 to 2.9%, representing downward revisions of 0.2 and 0.1 percentage points respectively compared to March projections. This adjustment is primarily attributed to the ongoing conflict in the Middle East, which is expected to cause increased geopolitical uncertainty and higher international oil prices. For 2026, the unemployment rate is now expected to reach 4.6%, marking a 0.1 percentage point increase, while inflation is projected to rise to 3.2%. Core inflation is forecast to remain stable at 2.3%. The bank's baseline scenario assumes the conflict will persist until the final quarter of 2026 before undergoing gradual de-escalation. The CBC warns that sectors such as tourism, shipping, construction, and real estate are particularly vulnerable to these conditions due to their reliance on foreign direct investment. Risks to the economic outlook are currently assessed as skewed toward lower GDP growth and higher inflation.