Cyprus is bracing for economic uncertainty as trade tensions within the European Union threaten to create wider instability. While the island nation is not at the centre of the disputes, government officials and economic analysts warn that the fallout could have serious consequences for its economy, particularly in tourism and exports.

Deputy government spokesman Yiannis Antoniou voiced concerns over the deteriorating economic climate, warning of unpredictable consequences.

“A highly negative economic climate is developing, bringing concerns and uncertainties,” he said on CyBC’s programme Apo Mera se Mera. 

“Even though Cyprus does not have significant trade relations in terms of exports, such negative conditions will inevitably affect the standard of living for European citizens.”

A key area of concern is tourism, which forms the backbone of Cyprus’ economy. Antoniou stressed that economic struggles across Europe could limit disposable income, directly affecting people’s ability to travel.

“If a household’s disposable income decreases, holidays will be the first thing they cut back on. This is an unavoidable impact we must consider,” he added.

Beyond tourism, Cypriot exports could also face challenges. Antoniou pointed to potential price increases on American imports to the EU, which could set off retaliatory measures, creating additional trade barriers.

“If the EU’s response includes tariffs, there will certainly be an effect,” he noted.

“It will not be a blanket measure affecting all sectors, but it will impact consumption overall. Our initial assessment is that if economic consequences emerge across Europe, Cyprus will not remain unaffected.”

The possibility of rising tariffs on European goods is also raising concerns among local business leaders. Antonis Fragoudes, director of business development at the Federation of Employers and Industrialists (Oev), highlighted how Cypriot exports, particularly halloumi, could struggle in a shifting trade environment.

“Halloumi remains our most valuable export to the US, with trade worth nearly €9.5 million,” he said.

“If tariffs increase, Cypriot exporters will struggle to remain competitive.”

Cyprus also exports fish, olive oil, salt and cocoa beans to the US, with analysts warning that increased costs could make these products less attractive to buyers abroad.

The broader instability caused by trade disputes is also being watched closely by the business sector. Andreas Andreou, deputy secretary-general of the Cyprus Chamber of Commerce and Industry, pointed to US tariffs on European vehicles as an example of how economic instability in key EU markets could trickle down to Cyprus.

“The US has imposed a 25 per cent tariff on German cars and 20 per cent on other European vehicles,” he explained. 

“If this leads to job losses or reduced consumer confidence in Europe, fewer people may afford holidays in Cyprus.”

With the UK and Germany being Cyprus’ largest sources of tourists, any downturn in these economies could significantly affect local businesses, from hotels to restaurants and service providers.

Economists are also warning that global uncertainty could lead to market volatility, further complicating economic forecasts for smaller nations like Cyprus. Stelios Platis, a leading Cypriot economist, cautioned that even if Cyprus is not directly targeted by trade disputes, the psychological effect alone could damage economic confidence.

“If businesses hesitate to invest and consumers spend less, the impact will eventually reach Cyprus,” Platis noted.

The European Central Bank (ECB) may be forced to adjust monetary policies in response to economic slowdowns in key EU economies such as Germany and France. While lower interest rates could provide short-term relief, long-term economic stability remains uncertain.

Despite these challenges, some economists suggest Cyprus can mitigate risks by diversifying its trade relationships beyond the EU and the US. Strengthening ties with Middle Eastern and Asian markets could open new opportunities for Cypriot exports and limit dependence on traditional trade partners.

“We need to be proactive,” said economist Tassos Yiasemides.

“Cyprus must seek alternative trade agreements and ensure competitiveness in global markets. Stability in tourism and exports is essential for economic resilience.”

As trade tensions persist, Cyprus faces a delicate balancing act. While it may not be a direct player in the disputes, the island’s economic future remains intertwined with Europe’s fortunes. A downturn in key markets could have lasting consequences, making adaptability and vigilance more crucial than ever.