Nicosia:The Economics Research Centre (CypERC) of the University of Cyprus has revised its economic forecast for 2026, increasing its growth prediction by 0.5 percentage points compared to its previous outlook in July.

According to Cyprus News Agency, CypERC anticipates that the real GDP growth in Cyprus will decrease from 4.8% in 2025 to 3.2% in 2026, and further to 3.1% in 2027. This slowdown is attributed to persistent inflationary pressures and tighter monetary conditions. However, the revised forecast suggests a positive outlook for 2026 and 2027, supported by recently updated historical GDP data released on October 20, 2026.

The adjustment in the 2026 growth forecast, compared to July's figures, is largely due to stronger economic performance in the second quarter and favorable developments in the third quarter, including increased economic confidence, low unemployment, and a rise in new housing loans. The forecast for 2027 remains unchanged.

The inflation forecast has also been revised upwards, with the Consumer Price Index (CPI) expected to rise from 0.1% in 2025 to 3.1% in 2026, before decreasing to 2.3% in 2027. CypERC notes that these inflation adjustments reflect ongoing price developments and the strong economic environment in Cyprus.

CypERC highlights that since July, risks to the growth outlook remain skewed towards the downside, while risks to the inflation outlook continue to be on the upside. The ongoing Middle East conflict is cited as a significant factor contributing to inflationary pressures and cost-of-living challenges, posing uncertainties for future economic growth and inflation projections.

Furthermore, tighter-than-expected financing conditions could present new challenges for businesses, households, and public finances, potentially resulting in lower GDP growth than currently projected.