Cyprus’ economic growth is expected to slow in 2026 despite a modest improvement in the wider European economy, according to updated projections published by the Economics Research Centre of the University of Cyprus (CypERC) and preliminary figures from Eurostat.

The CypERC now forecasts Cyprus’ real gross domestic product (GDP) growth at 2.7 per cent in 2026, down from an estimated 3.8 per cent in 2025, before strengthening to 3.1 per cent in 2027.

At the same time, Eurostat reported that seasonally adjusted GDP increased by 0.4 per cent in the euro area and by 0.5 per cent across the European Union during the second quarter of 2026, compared with the previous quarter.

The latest European figures marked an improvement after GDP remained unchanged in the euro area and grew by just 0.1 per cent in the EU during the first quarter of 2026.

Compared with the second quarter of 2025, GDP increased by 1.0 per cent in the euro area and 1.2 per cent in the EU, following annual growth of 0.5 per cent and 0.8 per cent respectively in the previous quarter.

Eurostat cautioned that these preliminary flash estimates are based on incomplete data sources and remain subject to further revisions.

For Cyprus, inflation is expected to accelerate to 3 per cent in 2026, representing a sharp increase from the exceptionally low level recorded in 2025.

Compared with its previous projections published in April, CypERC revised its 2026 growth forecast down by 0.2 percentage points, while leaving its 2027 projection unchanged.

According to the centre, the downgrade reflects weaker GDP growth during the first quarter of 2026 in both Cyprus and the euro area, as well as developments captured by leading economic indicators between April and June.

The report said these developments are primarily linked to the continuing conflict in the Middle East, which has affected both regional and international economic conditions.

According to CypERC, these developments indicate rising price pressures, weaker labour demand in certain sectors, declining business and consumer confidence, greater economic uncertainty and tighter financing conditions.

Despite these headwinds, the centre expects the Cyprus economy to remain resilient, supported by one of the lowest unemployment rates in the EU, sound public finances and a recent increase in new housing loans.

Indeed, Eurostat figures published on Thursday showed that Cyprus’ seasonally adjusted unemployment rate fell to 3 per cent in June 2026, down from 3.1 per cent in May and 3.2 per cent in April.

The figure placed Cyprus joint lowest in the EU alongside Bulgaria, well below the bloc’s average.

The total number of unemployed people on the island stood at approximately 16,000 in June, unchanged from May and down from 17,000 in April.

Among people under the age of 25, the youth unemployment rate remained stable at 7.8 per cent, while the number of unemployed young people was estimated at 2,000, the same as in May.

Among the EU member states that have so far published second-quarter GDP data, Ireland recorded the strongest quarterly growth at 3.9 per cent, followed by Lithuania at 1.7 per cent and Sweden at 1.4 per cent.

Belgium and Austria recorded the weakest quarterly performance, with both economies reporting zero growth.

On an annual basis, Eurostat said fourteen member states recorded positive growth, while one country registered a contraction.