The economic context of Cyprus

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Cyprus is an open free-market economy mainly based on services. After being severely hit by the global financial crisis and the exposure of the national banking system, the country's economy recovered in recent years, thanks to domestic demand and tourism, until the abrupt halt caused by the COVID-19 pandemic. Nevertheless, Cyprus’ GDP returned to its pre-pandemic level already in 2021, with continued growth in 2022 when robust private consumption, the revival of the tourism sector and increased services exports contributed to a 3.5% growth (data IMF; 5.8% according to the EU Commission estimates). A 50% wage indexation was implemented in January 2023 and is expected to support private consumption over the course of the year, with the IMF forecasting growth at 2.5% on the back of a full recovery of the tourism sector (although rising interest rates are set to negatively affect corporate investments and residential construction). The growth rate should remain relatively stable in 2024, at 2.6%.

Concerning public finances, Cyprus’ recorded a general government budget surplus of EUR 587 million (2.2% of GD) during the first nine months of 2022, compared to a deficit of EUR 453.3 million in the corresponding period one year earlier, thanks to a EUR 1.15 billion in revenues (+16.2% - data Statistics Cyprus). The 2023 budget provides for general government expenditures of EUR 11.29 billion and revenues of EUR 11.76 billion, projecting a surplus at around 1.7% of GDP (although the IMF projections are more conservative, at 0.7%). The public debt-to-GDP ratio – at 93.6% in 2022 – has been helped by the continued economic expansion and is expected to follow a downward trend over the forecast horizon, decreasing to 80.2% by 2024. Inflation reached 8% in 2022 fuelled by high energy prices and supply bottlenecks. As falling gas and oil prices ease energy inflation and supply disruptions attenuate further, the IMF sees the inflation rate returning closer to the target, at 3.8% this year and 2.1% in 2024, although wage indexation may exert some upward pressure on core inflation.

The unemployment rate stood at 6.1% in 2022 (from 7.5% one year earlier), and is expected to gradually decrease in 2023 and 2024 on the back of the economic expansion and the implementation of the EU’s RRP (to 6.5% and 6.3%, respectively – IMF). In recent years, a strong focus on the service and skilled industry, along with industrial and agricultural growth, has allowed the country to improve its already high standard of living; however, 17.3% of the population is at risk of poverty or social exclusion (below the EU average of 21.7% - Eurostat). Overall, the IMF estimated Cyprus’ GDP per capita (PPP) at USD 49,504 in 2022.

Main Sectors of Industry

In the past two decades, the basis of the Cypriot economy has shifted from agriculture to light manufacturing and, most importantly, services. Nowadays, the agricultural sector contributes around 1.7% of GDP and employs 2% of the active population (World Bank, latest data available). Agricultural sector suffers from a very dry climate, and only 13% of the land is arable (125,000 ha - FAO). The main crops are wine grapes, potatoes and fruits. Mineral resources are limited and include mostly copper, pyrites, chrome, asbestos and gypsum.

Industry (mainly industrial food-processing, paper, chemical products, textiles, metal products and petroleum refining) accounts for 13.1% of GDP (including construction) and employs around 18% of the active population. The government aims to double the industry's share of GDP by 2030. The manufacturing sector is not very developed and is estimated to account for nearly 6% of GDP (World Bank, latest data available). According to figures from Statistics Cyprus, the annual average variation of industrial production in the period January-November 2022 stood at an estimated +1.7%.

Cyprus’ economy is mostly based on the tertiary sector, which contributes 73.2% of the GDP and employs 79% of the active population. Tourism and maritime transportation are considered to be the two pillars of the Cypriot economy. After recording an all-time record of tourists in 2019 (almost 4 million), the number of arrivals was almost halved in 2021 amid the COVID-19 pandemic crisis. Nevertheless, the sector recovered in 2022, when the country welcomed 3.2 million tourists (+65% y-o-y and 80% of the pre-pandemic level - Cystat). Cyprus has the eleventh-largest shipping fleet in the world and the third-largest in the European Union. However, offshore activities are often led by foreign-capital companies based in Cyprus, whose commercial activities are executed exclusively outside the country. This system enables them to enjoy substantial tax benefits. Finance and real estate have traditionally been among the most important services. As per the banking sector, there are 29 authorised credit institutions in Cyprus, consisting of 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)	2.4	18.4	79.2
Value Added (in % of GDP)	1.7	13.1	73.2
Value Added (Annual % Change)	0.1	8.1	6.2

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

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

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

 

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