Cyprus flag Cyprus: Economic and Political Overview

The economic context of Cyprus

Economic Indicators

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. However, Cyprus’ GDP rebounded to its pre-pandemic level as early as 2021, with continued growth observed in 2022 and 2023 (at 5.6% and 2.2%, respectively). While private consumption remained robust last year, supported by real wage increases and sustained employment expansion, non-tourism services experienced lower external demand. In 2024 and 2025, real GDP is forecasted to increase by 2.7% and 3%, respectively. Domestic demand is expected to persist as the primary driver of real GDP growth, bolstered by automatic wage indexation for approximately half of the employees covered by collective agreements in both the public and private sectors, thereby maintaining their purchasing power. Moreover, significant investment initiatives in real estate, healthcare, transport, and tourism, partially backed by the Recovery and Resilience Facility, will contribute to growth. However, the contribution of net exports is projected to remain subdued due to economic uncertainty in Cyprus' primary trading partners and heightened import demand driven by investments.

Regarding public finances, the IMF estimated a general government budget surplus of 1.3% of GDP in 2023. Despite extending support measures to mitigate the effects of high prices and anticipated fiscal costs from the Mortgage-to-Rent scheme, the IMF anticipates a continued surplus for this year and 2025, slightly exceeding 1% of GDP. The public debt-to-GDP ratio, standing at 78.6% in 2023, has benefited from ongoing economic expansion and is expected to follow a downward trend, decreasing to 66.8% by 2025. HICP inflation decelerated to 3.9% in 2023, down from 8.1% in 2022, primarily due to reduced energy prices. HICP inflation is forecasted to ease to 2.4% in 2024 and further to 2.1% in 2025, reflecting the anticipated ongoing decline in energy and other commodity prices. Conversely, wage indexation is expected to exert upward pressure on HICP inflation excluding energy and food.

The unemployment rate stood at 6.7% in 2023 (down from 6.8% one year earlier) and is anticipated to gradually decrease in 2024 and 2025, driven by economic expansion and the implementation of the EU’s RRP (to 6.4% and 6.1%, respectively – IMF). 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 World Bank estimated Cyprus’ GDP per capita (PPP) at USD 49,931 in 2022.

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 29.2732.1934.2235.9437.81
GDP (Constant Prices, Annual % Change) 5.12.52.72.93.0
GDP per Capita (USD) 32,35734,95737,14938,66540,356
General Government Balance (in % of GDP) 1.31.81.71.71.7
General Government Gross Debt (in % of GDP) 85.677.470.765.160.0
Inflation Rate (%) 8.13.92.32.02.0
Unemployment Rate (% of the Labour Force) 6.86.15.95.75.5
Current Account (billions USD) -2.32-2.99-2.93-3.07-3.22
Current Account (in % of GDP) -7.9-9.3-8.6-8.5-8.5

Source: IMF – World Economic Outlook Database, October 2021

Main Sectors of Industry

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 1.6% of GDP and employs 2% of the active population (World Bank, latest data available). The agricultural sector contends with a very dry 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 12.1% of GDP (including construction) and employs approximately 17% 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 nearly 5% of GDP (World Bank, latest data available). According to Statistics Cyprus, the annual average variation of industrial production in the period January-November 2023 was estimated at +2.5%. Significant improvements were observed in electronic and optical products manufacturing (+28.6%), electrical equipment production, machinery, motor vehicles, and transport equipment (+13.0%), basic metals and fabricated metal products manufacturing (+10.9%), and textiles, apparel, and leather goods production (+10.0%). Conversely, declines were registered in furniture manufacturing and machinery/equipment repair/installation (-7.6%), electricity supply (-1.6%), and rubber/plastic products manufacturing (-0.1%).

Cyprus’ economy primarily relies on the tertiary sector, which contributes 74.3% of GDP and employs 80% 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 from January to November 2023 reached 3,722,022, marking a substantial increase of 20.4% compared to the corresponding period in 2022, nearing pre-pandemic levels. 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 29 authorized credit institutions, comprising six local institutions, three subsidiaries of EU banks, one subsidiary of a foreign bank from a non-EU country, five branches of banks from EU Member States, 13 branches of banks from non-EU Member States, and one representative office (EBF).

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 2.8 17.9 79.2
Value Added (in % of GDP) 1.7 13.5 72.4
Value Added (Annual % Change) 0.8 0.2 6.6

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

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.}}

Score:
71,4/100
World Rank:
33
Regional Rank:
19

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

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.

Score:
7.01/10
World Rank:
32/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2021-2025

 

Country Risk

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Sources of General Economic Information

Ministries
Ministry of Finance
Statistical Office
Statistical Service
Central Bank
Central Bank of Cyprus
Stock Exchange
Cyprus Stock Exchange
Economic Portals
Cypruseconomy
 

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Latest Update: April 2024

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