Cyprus: Economic and Political Overview
Cyprus is an open free-market economy primarily based on services. After enduring the impact of the global financial crisis and the exposure of the national banking system, the country's economy underwent a recovery in recent years, largely driven by domestic demand and tourism until the abrupt halt caused by the COVID-19 pandemic. Real GDP growth remained resilient in 2024, expanding by 3.4% (CyStat), mainly driven by private consumption. Investment, excluding the volatile registration of ships and aircraft, grew, supported by positive sentiment in the construction sector. Strong foreign demand for services, particularly in sea transport and tourism, contributed to solid export performance. This positive trend is expected to persist, with economic growth projected at 3.1% in 2025 and 3% in 2026 (IMF). Investment will likely continue to benefit from Recovery and Resilience Facility funds, while easing financial conditions should provide additional support. Export performance is anticipated to remain strong, driven by rising tourist revenues and a dynamic services sector, particularly in ICT. The ongoing recovery in household purchasing power, supported by rising nominal wages and declining inflation, is expected to further boost private consumption.
The country has a solid fiscal position: according to CyStat, Cyprus recorded a fiscal surplus of EUR 1.51 billion (4.5% of GDP) in 2024, a significant increase from EUR 631.5 million (2.0% of GDP) in 2023. This was driven by higher revenue, which grew by EUR 1.07 billion (+7.8%) to reach EUR 14.84 billion, while total expenditure increased modestly by EUR 197.4 million (+1.5%) to EUR 13.33 billion. The budget surplus is expected to persist but decline to 2.7% of GDP in 2025 and 2026, as tax revenue growth slows in line with income and consumption trends, while tax arrears collection stabilises. Meanwhile, rising expenditure in 2025 will be driven mainly by ad hoc public wage increases approved at the end of 2024 and new measures to support housing. The debt-to-GDP ratio has been following a downward trend in recent years and is expected to continue declining from 70.6% of GDP in 2024 to 59.1% in 2026, largely due to primary surpluses and continued strong nominal GDP growth. The Consumer Price Index (CPI) recorded an increase of 1.8% in 2024 (CyStat) and is projected to remain around 2% over the forecast period, driven by the fading impact of base effects, particularly for food, and lower domestic energy prices. However, services inflation is expected to stay high, fueled by strong nominal wage growth and rising demand, especially in tourism.
The unemployment rate stood at 4.6% at the end of Q4/2024 (males 4,3%, females 4,9%), the lowest level in the last 15 years. Skills mismatches and labour market slack remain minimal, partly due to an inflow of foreign workers attracted by government incentives for multinational businesses to establish their base in Cyprus. The unemployment rate is expected to continue declining, reaching 4.5% by 2026, according to the EU Commission. Despite recent improvements in the service, skilled industry, and agricultural sectors, 16.7% of the population remains at risk of poverty or social exclusion (CyStat). The IMF estimated Cyprus’ GDP per capita (PPP) at USD 59,857 in 2024.
| Main Indicators | 2023 (E) | 2024 (E) | 2025 (E) | 2026 (E) | 2027 (E) |
| GDP (billions USD) | 32.24 | 34.79 | 37.69 | 39.81 | 41.88 |
| GDP (Constant Prices, Annual % Change) | 2.5 | 3.3 | 3.1 | 3.0 | 3.0 |
| GDP per Capita (USD) | 35,016 | 37,767 | 40,552 | 42,499 | 44,364 |
| General Government Balance (in % of GDP) | 2.0 | 2.2 | 2.2 | 2.2 | 1.5 |
| General Government Gross Debt (in % of GDP) | 77.3 | 70.6 | 63.9 | 59.1 | 55.3 |
| Inflation Rate (%) | 3.9 | 2.2 | 2.0 | 2.0 | 2.0 |
| Unemployment Rate (% of the Labour Force) | 6.1 | 5.3 | 5.1 | 5.0 | 5.0 |
| Current Account (billions USD) | -3.90 | -3.53 | -3.14 | -3.30 | -3.31 |
| Current Account (in % of GDP) | -12.1 | -10.1 | -8.3 | -8.3 | -7.9 |
Source: IMF – World Economic Outlook Database, October 2021
In the past two decades, the foundation of the Cypriot economy has transitioned from agriculture to light manufacturing and, significantly, services. Presently, the agricultural sector contributes around 1.2% of GDP and employs 2.4% of the active population (World Bank, latest data available). The agricultural sector contends with an arid climate, with only 13% of the land being arable (125,000 ha - FAO). Major crops include wine grapes, potatoes, and fruits. Mineral resources are limited, consisting mostly of copper, pyrites, chrome, asbestos, and gypsum.
Industry (mainly industrial food-processing, paper, chemical products, textiles, metal products, and petroleum refining) accounts for 10.5% of GDP (including construction) and employs approximately 16.3% of the active population. The government targets to double the industry's share of GDP by 2030. The manufacturing sector is relatively underdeveloped, estimated to represent 4% of GDP (World Bank, latest data available). According to Statistics Cyprus, the annual average variation of industrial production in 2024 stood at +3%. From January to December 2024, the highest production increases were in water supply (+23.0%), electronics and electrical equipment (+12.9%), machinery and transport equipment (+10.4%), materials recovery (+8.0%), and mining (+7.5%). The biggest declines were in paper and printing (-12.1%), textiles and leather (-6.0%), and non-metallic minerals (-4.8%).
Cyprus’ economy primarily relies on the tertiary sector, which contributes 76.6% of GDP and employs 81.4% of the active population. Tourism and maritime transportation serve as the twin pillars of the Cypriot economy. After reaching an all-time high of tourists in 2019 (almost 4 million), the number of arrivals surpassed the 4 million mark in 2024. Cyprus boasts the eleventh-largest shipping fleet globally and the third-largest in the European Union. However, offshore activities are typically led by foreign-capital companies based in Cyprus, conducting their commercial operations exclusively outside the country, benefiting from significant tax advantages. Finance and real estate have traditionally been among the most critical services. In the banking sector, Cyprus hosts 18 authorized credit institutions, comprising six local institutions, three subsidiaries of EU banks, one subsidiary of a foreign bank from a non-EU country, three branches of banks from EU Member States, four branches of banks from non-EU Member States, and one representative office (EBF). Concerning retail trade, the turnover grew by 5.4% in 2024, while volume increased by 4.3% compared to 2023 (Cystat).
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
| Employment By Sector (in % of Total Employment) | 2.4 | 16.3 | 81.4 |
| Value Added (in % of GDP) | 1.2 | 10.5 | 76.6 |
| Value Added (Annual % Change) | 0.9 | 3.1 | 2.6 |
Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.
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The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}
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Source: Index of Economic Freedom, Heritage Foundation
The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.
Source: The Economist Intelligence Unit - Business Environment Rankings 2021-2025
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