Eurostat has reported steady economic growth across the European Union over the fourth quarter of 2025, a trend which Cyprus is expected to mirror, and potentially outperform, over the coming years.

Eurostat said that GDP in the euro area and the EU rose by 0.3 per cent in the fourth quarter of 2025 compared with the previous quarter, based on a preliminary flash estimate.

The data showed that in the third quarter of 2025, economic growth had also stood at 0.3 per cent in the euro area, while the EU recorded a slightly higher increase of 0.4 per cent.

Based on quarterly seasonally and calendar adjusted figures, Eurostat estimated that annual GDP growth for 2025 reached 1.5 per cent in the euro area and 1.6 per cent in the EU.

Eurostat cautioned that the flash GDP estimates are based on incomplete data and remain subject to further revisions.

Compared with the same quarter of the previous year, seasonally adjusted GDP increased by 1.3 per cent in the euro area and 1.4 per cent in the EU in the fourth quarter of 2025.

This marked a slowdown from the previous quarter, when year-on-year growth stood at 1.4 per cent in the euro area and 1.6 per cent in the EU.

Among the member states with available data, Lithuania recorded the strongest quarterly increase at 1.7 per cent, followed by Spain and Portugal, both at 0.8 per cent.

Ireland was the only country to record a contraction, with GDP falling by 0.6 per cent compared with the previous quarter.

Year-on-year growth was positive in 14 member states and stable in one country during the fourth quarter of 2025.

Against this backdrop, Cyprus’ economic growth rate is expected to remain broadly stable, according to the University of Cyprus Economics Research Centre’s January outlook.

The centre forecast that Cyprus’ GDP growth will reach 3.5 per cent in 2026 and ease slightly to 3.4 per cent in 2027.

It estimated that the growth rate of real GDP slowed from 3.9 per cent in 2024 to 3.5 per cent in 2025.

The centre said the projections for 2026 and 2027 point to broadly stable growth, following strong economic momentum.

It added that the growth forecasts for 2025 and 2026 remained unchanged compared with the October issue of its outlook.

According to the centre, the favourable outlook mainly reflects positive domestic developments during 2025.

These include a strong labour market, easing inflation, high economic confidence and increased new lending supported by lower interest rates.

Despite heightened global uncertainty and volatility in international markets during 2025, the centre said Cyprus continues to benefit from steady, though subdued, growth among its trade partners.

It also highlighted the strong performance of international equity markets, which it said points to the resilience of global economic prospects.

Inflation based on the consumer price index is forecast to rise from 0.1 per cent in 2025 to 0.8 per cent in 2026 and further to 1.4 per cent in 2027.

The inflation forecast for 2026 was revised down by 1.2 percentage points compared with the October issue.

The centre said this revision reflects lower than expected inflation and further declines in international oil prices during the fourth quarter of 2025.

It added that the inflation outlook is influenced by developments in 2025, particularly falling oil prices, easing global food prices and a stronger euro.

The centre warned that the January forecasts are accompanied by significant external risks, including the possibility of lower than expected growth and higher than anticipated inflation.

It said risks to growth continue to stem mainly from the external environment, especially the potential for weaker economic performance in Cyprus’ main trading partners.

Finally, the centre said inflation risks largely arise from strong domestic activity and tight labour market conditions.