Cyprus economic downturn is slowing

According to updated data from the University of Cyprus Centre for Economic Research (CypERC), in July 2026, the Composite Leading Economic Index of Cyprus (CCLEI) declined by 0.43% year on year. However, the annual decrease was less pronounced, indicating a gradual easing of the negative trend. Nevertheless, the Cypriot economy continues to face short-term risks due to external and geopolitical pressures.

The CCLEI is used to identify possible changes in economic activity at an early stage. Its calculation takes into account Brent crude oil prices, economic sentiment in Cyprus and the euro area, the number of real estate sale and purchase contracts, tourist arrivals, the volume of bank card transactions, retail sales and electricity generation. In July, the index was negatively affected by a deterioration in economic sentiment compared with the previous year, rising Brent oil prices and a decline in tourist arrivals.

At the same time, the real estate market, retail trade, electricity generation and bank card transactions made a positive contribution. This partially offset the negative impact of other indicators.  Overall, economic sentiment in Cyprus improved in July. The ESI-CypERC index rose by 0.7 points compared with June, continuing the positive trend of recent months.

The increase in confidence was driven primarily by companies in the services and retail sectors. Confidence in the construction and manufacturing sectors, by contrast, declined.

In the services sector, companies became more optimistic about expected turnover in the coming months. In retail trade, confidence has been rising for the second consecutive month amid a more favourable assessment of stock levels and expectations for future sales. Consumers, meanwhile, are less optimistic. The consumer confidence index declined, mainly due to households’ worsening assessment of their financial situation and expectations about how it will change in the future.

Overall economic uncertainty in Cyprus declined in July. However, it has been rising among consumers for the second consecutive month. The largest increase in uncertainty about their future financial situation was recorded among low-income families.

CypERC also updated its economic forecasts. Real GDP growth in Cyprus is expected to slow from 3.8% in 2025 to 2.7% in 2026, before accelerating to 3.1% in 2027.

According to the forecast, inflation will rise from 0.1% in 2025 to 3% in 2026, before falling to 2.1% in 2027.

The economic outlook is being negatively affected by slowing economic activity in Cyprus and the euro area, rising energy prices, tighter financing conditions and the continuing economic consequences of instability in the Middle East. At the same time, CypERC expects the Cypriot economy to remain relatively resilient, supported by low unemployment, stable public finances and growing demand for new housing loans.

Overall, the economic situation remains mixed: the annual decline in the leading index persists but is becoming less pronounced, while a number of domestic indicators continue to support economic activity.