Cyprus GDP forecast slashed as Middle East tensions weigh on outlook

Eurostat has reported that seasonally adjusted GDP increased by only 0.1 per cent in both the euro area and the wider EU during the first quarter of 2026.

This preliminary flash estimate indicates a loss of momentum compared to the fourth quarter of 2025, when GDP had grown by 0.2 per cent in both regions.

The softening of the European economy coincides with a revised outlook for Cyprus, where researchers are warning of a significant slowdown following a robust performance in the previous year.

Real GDP growth in Cyprus, meanwhile, is now expected to moderate from 3.8 per cent in 2025 to 2.9 per cent in 2026, before a minor recovery to 3.1 per cent in 2027.

The Economics Research Centre of the University of Cyprus noted that these projections represent downward revisions of 0.6 and 0.3 percentage points respectively compared with earlier forecasts.

Weaker outlooks are primarily attributed to economic headwinds linked to escalating tensions in the Middle East, according to the research centre.

The broader European data shows that compared with the same quarter of the previous year, seasonally adjusted GDP increased by 0.8 per cent in the euro area and by 1.0 per cent in the EU in the first quarter of 2026.

These figures represent a sharp deceleration from the 1.3 per cent in the euro area and 1.4 per cent in the EU recorded in the final months of 2025.

Among the member states with available data, Finland recorded the highest quarterly increase at 0.9 per cent, followed by Hungary at 0.8 per cent.

Estonia and Spain both registered increases of 0.6 per cent, while Ireland suffered a significant contraction of 2.0 per cent.

Lithuania and Sweden also saw their economies shrink by 0.4 per cent and 0.2 per cent respectively.

The slowdown comes after a period of expansion for Cyprus, where GDP at constant prices reached €30.52 billion in 2025.

Positive growth in the previous year was mainly driven by the ICT, hotels and restaurants, construction, and wholesale and retail trade sectors, the Cyprus Statistical Service (Cystat) reported earlier this month.

In current prices, public consumption in Cyprus increased by 6.7 per cent to €6.82 billion compared with 2024, while private consumption rose by 3.7 per cent.

Gross capital formation recorded an increase of 2.3 per cent, and exports of goods and services grew by 5.3 per cent to €35.52 billion.

However, imports rose by 4.9 per cent, exerting downward pressure on the overall GDP figures.

The fourth quarter of 2025 had seen Cyprus grow by 1.4 per cent compared with the previous quarter, a much stronger pace than the current European average.