University of Cyprus predicts economic slowdown and rising inflation for 2026

The Economic Research Centre of the University of Cyprus has revised its economic outlook, forecasting a slowdown in GDP growth from 3.8% in 2025 to 2.9% in 2026, before a slight recovery to 3.1% in 2027. Compared to January projections, growth estimates for 2026 and 2027 have been downgraded by 0.6 and 0.3 percentage points, respectively. These revisions are primarily attributed to heightened geopolitical tensions in the Middle East and an outbreak of foot-and-mouth disease. Monthly data for March indicate weakening demand, particularly for external services, alongside increased business and consumer uncertainty. Inflation is expected to rise sharply from 0.1% in 2025 to 2.7% in 2026, marking a 1.9 percentage point upward revision compared to previous forecasts, before cooling to 1.8% in 2027. This inflationary pressure is driven by rising global oil prices and domestic food costs. Despite these challenges, analysts suggest that strong fourth-quarter 2025 performance, robust public finances, and low unemployment will help mitigate the negative economic impact.