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Economic and political overview

Economic Overview

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 2023 (E)2024 (E)2025 (E)2026 (E)2027 (E)
GDP (billions USD) 32.2434.7937.6939.8141.88
GDP (Constant Prices, Annual % Change) 2.53.33.13.03.0
GDP per Capita (USD) 35,01637,76740,55242,49944,364
General Government Balance (in % of GDP) 2.02.22.22.21.5
General Government Gross Debt (in % of GDP) 77.370.663.959.155.3
Inflation Rate (%) 3.92.22.02.02.0
Unemployment Rate (% of the Labour Force) 6.15.35.15.05.0
Current Account (billions USD) -3.90-3.53-3.14-3.30-3.31
Current Account (in % of GDP) -12.1-10.1-8.3-8.3-7.9

Source: IMF – World Economic Outlook Database , October 2021

Country Risk

See the country risk analysis provided by La Coface.

 

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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) 2.4 16.3 81.4
Value Added (in % of GDP) 1.2 10.5 76.6
Value Added (Annual % Change) 0.9 3.1 2.6

Source: World Bank - Latest available data.

 
Monetary Indicators 20162017201820192020
Euro (EUR) - Average Annual Exchange Rate For 1 USD 0.940.890.850.890.88

Source: World Bank - Latest available data.

 

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Foreign Trade

The geographical location of Cyprus (being a bridge between West and East), along with its good airlines and telecommunications infrastructure, has enabled the country to turn itself into an important regional and international business centre. The country's foreign trade represents 190% of GDP (World Bank) and is mainly oriented towards the EU. In 2022, Cyprus primarily imported mineral fuels and oils (EUR 2,626.5 million), vessels (EUR 1,302.4 million), electrical machinery and materials (EUR 630.4 million), motor cars, other vehicles, and parts (EUR 626.0 million), and other machinery, boilers, appliances, and their parts (EUR 580.9 million). The key products of domestic origin exported from Cyprus in 2022 included mineral fuels and oils (EUR 455.9 million), pharmaceutical products (EUR 336.5 million), halloumi cheese (EUR 284.5 million), waste and scrap (paper, glass, metal) (EUR 87.0 million), and potatoes (EUR 42.4 million – data CyStat).

In 2022, intra-EU imports comprised 60.8% of the total, down from 65.1% in 2021, while extra-EU imports accounted for 39.2%, up from 34.9% in 2021. In 2022, intra-EU exports constituted 26.0%, down from 27.4% in 2021, while extra-EU exports made up 74.0%, up from 72.6% in 2021. The primary partner countries for imports in 2022 were Greece (EUR 2,640.9 million), Italy (EUR 1,183.9 million), China (EUR 898.2 million), Israel (EUR 835.9 million), and Germany (EUR 600.5 million). For exports of domestic goods, the main partner countries were Lebanon (EUR 287.3 million), the United Kingdom (EUR 204.8 million), Greece (EUR 121.0 million), and Israel (EUR 81.6 million - data CyStat).

Cyprus' trade balance is traditionally in deficit because the country has to import extensively in order to satisfy domestic demand (particularly, for energy supplies). In 2022, the country exported USD 4.3 billion worth of goods, importing USD 12 billion (+11.6% and +16.5% y-o-y, respectively). However, Cyprus is a net service exporter (USD 21.2 billion in 2022 against USD 15.1 billion in imports). According to the provisional 2023 data from CyStat, total goods imports amounted to EUR 12,764.2 million, up from EUR 11,470.0 million in 2022, marking an 11.3% increase. Total goods exports for January to December 2023 were EUR 4,189.5 million, indicating a 0.5% decrease. The trade deficit was EUR 8,574.7 million in 2023, compared to EUR 7,261.2 million in 2022.

 
Foreign Trade Values 20192020202120222023
Imports of Goods (million USD) 9,1278,76110,39712,20513,987
Exports of Goods (million USD) 3,4533,0633,9054,3634,453
Imports of Services (million USD) 10,94612,49415,60216,56016,603
Exports of Services (million USD) 16,39917,00421,95722,91923,957

Source: World Trade Organisation (WTO) ; Latest available data

Foreign Trade Indicators 20192020202120222023
Foreign Trade (in % of GDP) 150.5160.7176.8201.2192.8
Trade Balance (million USD) -5,180-4,842-5,216-6,297-7,690
Trade Balance (Including Service) (million USD) 260-3321,13962-283
Imports of Goods and Services (Annual % Change) 9.53.319.626.61.7
Exports of Goods and Services (Annual % Change) 8.71.626.223.80.1
Imports of Goods and Services (in % of GDP) 74.781.086.199.095.8
Exports of Goods and Services (in % of GDP) 75.879.690.8102.297.0

Source: World Bank ; Latest available data

Foreign Trade Forecasts 20242025 (e)2026 (e)2027 (e)2028 (e)
Volume of exports of goods and services (Annual % change) 3.22.72.32.72.7
Volume of imports of goods and services (Annual % change) 1.82.42.42.72.7

Source: IMF, World Economic Outlook ; Latest available data

Note: (e) Estimated Data

 
International Economic Cooperation
Cyprus is a member of the European Union, the United Nations, the Council of Europe, the World Trade Organization, the World Bank, the Commonwealth and the International Monetary Fund. It is also well represented by diplomatic missions in foreign countries.
 

Main Partner Countries

Main Customers
(% of Exports)		 2023
Lebanon 9.5%
Bermuda 8.0%
Greece 6.0%
Marshall Islands 5.8%
United Kingdom 4.7%
See More Countries 66.1%
Main Suppliers
(% of Imports)		 2023
Greece 21.9%
United Kingdom 10.3%
Italy 7.7%
China 5.9%
Germany 5.3%
See More Countries 48.8%

Source: Comtrade, Latest Available Data

 

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Political Outline

Current Political Leaders
Chief of State and head of government: President Nikos CHRISTODOULIDIS (since 28 February 2023)
Next Election Dates
Presidential: 2028
Legislative: May 2026 (2027 for the area administered by Turkish Cypriots)
Main Political Parties
Following the latest legislative elections, the composition of the Parliament is as follows:
- Democratic Rally (Disy): right-wing, absorbed the Liberals in 1998 (17 seats)
- Progressive Party of the Working People (Akel): left-wing, communist (15 seats)
- Democratic Party (Diko): centrist (9 seats)
- National Popular Front (Elam):  far right, nationalist (3 seats)
- Movement of Social Democrats (Edek): centre-left, formerly known as Social Democratic Movement (Kisos) (3 seats)
- Democratic Alignment (DiPa: centre, liberal (4 seats)
- Ecologists Movement (KOSP): centre-left, green (2 seats)
- Volt Cyprus: Eurofederalist and progressive (1 seat)
Executive Power
The President is both the Chief of the State and the Head of the Government. The President is elected by popular vote for a five-year term and holds the executive powers. The Council of Ministers is appointed by the President. Under the 1960 Constitution, the position of Vice-President is reserved for a Turkish Cypriot. However, this position has remained vacant since 1973.
Legislative Power
The legislative power of the Republic of Cyprus is unicameral. The parliament consists of the House of Representatives, whose 80 members are directly elected by elected by proportional representation and preferential vote for five years. 24 seats are allocated to the Turkish Cypriot community but have been vacant since 1974 so the parliament is formed solely by the 56 Greek Cypriots.
The area administered by Turkish Cypriots has a separate unicameral Parliament (the Assembly of the Republic), formed by 50 members directly elected by a proportional representation system to serve a 5-year term.
Cypriots enjoy considerable political rights.
 

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