Cyprus is heading into the autumn with one of the strongest growth rates in the EU, but rising energy costs, higher interest rates and weaker external demand could determine how much of that growth reaches households, CFA Society Cyprus board member Kyriacos Inios said.

“Cyprus goes into the autumn growing faster than almost any other EU economy, but with the same imported problem as everyone else: the war in the Middle East has pushed up the price of oil, and with it the price of everything that moves by road or ship,” Inios said.

With the ECB raising rates again, he added, “the next few months will show how much of the growth reaches household budgets”.

Inios described the starting point as strong. Real GDP grew by 3.8 per cent in 2025, compared with 1.5 per cent in the EU, while the European Commission’s May forecasts still put Cyprus ahead in 2026, at 2.3 per cent against 1.1 per cent for the EU.

At the same time, he cautioned that the gap is narrowing and that the broader slowdown is not bypassing Cyprus.

Energy remains one of the clearest pressure points in his assessment.

In 2024, net imports covered 87.7 per cent of Cyprus’ energy needs, down from around 92 per cent in 2022 but still well above the EU average of 57.2 per cent.

“When oil goes up abroad, it shows up quickly at the pump, in production costs and on the supermarket shelf,” Inios said.

He linked that vulnerability directly to the recent rise in inflation. Harmonised inflation stood at 1.5 per cent in March, before climbing to 4.4 per cent in July, compared with 3.0 per cent in the EU. The August flash estimate then reached 5.2 per cent, against 3.3 per cent in the euro area, marking a fourth consecutive monthly increase.

Inios pointed to the Central Bank’s assessment that more expensive oil, tied to the conflict and restrictions in the Strait of Hormuz, had contributed to the increase, while petroleum products in the national consumer price index were 20.3 per cent more expensive in August than a year earlier.

He also stressed that the pressure does not stop at fuel. More expensive transport and fertiliser feed through into food prices, while restaurants and accommodation were already 12 per cent higher in July on the harmonised index.

Interest rates are another part of the picture.

Inios noted that the ECB raised its deposit rate by another quarter point to 2.5 per cent on September 10, its second increase since June, while markets expect a further rise by December.

For Cyprus, where most loans are priced off Euribor, he said borrowers are likely to feel the impact within months.

He also pointed to the cost-of-living allowance, which will pass part of this year’s inflation into wages in January. While that offers relief to employees, Inios said it also raises costs for employers and creates “a risk of a second round of price increases if energy stays expensive”.

Tourism, meanwhile, has had a difficult year, though Inios said the picture improved over the summer.

Arrivals in the first seven months were down 8 per cent to 2.24 million, after rising from 4.04 million in 2024 to 4.53 million in 2025.

Most of the damage, he said, came in March and April, when arrivals fell by around 30 per cent as the conflict escalated. By July, the monthly decline had narrowed to 1.1 per cent.

The wider indicators were weaker. Overnight stays fell 7.7 per cent in the first half of the year, the steepest drop in the EU, while Malta recorded a 9.9 per cent increase and the EU as a whole grew by 1.7 per cent. Tourism revenue was also down 11.4 per cent, equivalent to around €157m.

For Inios, however, the more important issue lies in the composition of demand.

He pointed out that July held up partly because arrivals from Israel rose by more than half and accounted for a fifth of the total, while the UK and most European markets slipped.

With the Deputy Tourism Ministry expecting the year to close around 5 per cent below 2025, Inios said the figures strengthen the case for reaching new markets and extending the season.

He sees a similar external risk in trade, although he believes the greater threat comes through Europe rather than directly from the United States.

US tariffs, capped at 15 per cent for most European goods, add costs for the Cypriot products they cover, while US imports from Cyprus fell 13 per cent to $43m in the first seven months.

The bigger concern, in his view, is weaker European demand.

The European Commission expects EU exports to grow by just 0.9 per cent in 2026, with net trade subtracting 0.4 percentage points from growth.

For Cyprus, Inios said that could mean fewer orders for goods and services as well as fewer Europeans travelling abroad for holidays.

Despite those pressures, he identified several areas where Cyprus could ease some of the strain, starting with energy.

“The most direct route to relief is the electricity bill,” Inios said.

He pointed to seven storage projects that already have funding agreements under THALIA. Once operational, he said, they will allow solar electricity generated during the day to be used in the evening, when Cyprus currently relies more heavily on expensive fuel-fired generation.

In his view, that should lower generation costs and, over time, reduce bills.

The Great Sea Interconnector is another part of that equation.

Inios noted that Meridiam took a controlling stake in August, while seabed surveys are due to begin and the government still has to decide on possible state participation. The cable alone is estimated to cost more than €1.9 billion.

Further ahead, he pointed to the Kronos gas field, which is targeting production in 2028.

However, Inios stressed that the gas is currently planned for export through Egypt, meaning it would reduce electricity costs in Cyprus only if separate domestic supply agreements and infrastructure were put in place.

Technology, in his assessment, offers a different kind of opportunity, particularly through higher-value employment.

The sector contributed €5.9bn directly in 2025, equivalent to 16.2 per cent of GDP, up from 15.5 per cent in 2024, according to KPMG.

Employment across the wider sector has reached 48,200, growing by an average 9.7 per cent a year between 2016 and 2025, with Cypriots making up a significant share of the workforce.

Inios also pointed to the wage differential.

The 2022 official survey put median hourly earnings in Information and Communication at €15.98, compared with €8.98 across the economy.

He cited Cloud Office’s expansion as the latest example of corporate presence, while diplomatic openings towards India and Kazakhstan could, in his view, support the same direction.

The payoff, however, is more likely to be medium-term.

EU funding is another area Inios believes could support the economy, particularly as 2026 is the final year of the Recovery and Resilience Facility.

Following the July assessment, around €337m remains after the sixth instalment, subject to agreed milestones.

Among the projects are Phase B3 of the Nicosia ring road, worth €37m and due in 2028, and €20m of energy upgrades in schools running to 2027.

“Construction supports jobs now, and the savings in transport and energy costs arrive as each project is completed,” Inios said.

He also believes Cyprus is entering this period with more fiscal flexibility than many of its EU partners.

Public debt fell to 54.6 per cent of GDP at the end of March 2026, compared with 82.9 per cent in the EU, while the budget recorded a surplus of 2 per cent of GDP in the first seven months.

For Inios, that gives the government room to provide targeted and temporary support to households most exposed to higher fuel and electricity prices without placing undue pressure on the public finances.

“The test of the coming months is whether growth is turned into lower bills, productive investment and better-paid jobs, or whether it gets absorbed by imported inflation,” Inios concluded.