Cyprus technology sector leads decades-long surge in productivity

Productivity growth in Cyprus remained concentrated in a small number of sectors over the past three decades, with information and communications technology (ICT) recording by far the strongest gains, according to a report from the Economics Research Centre of the University of Cyprus (CypERC).

The report, which examined labour productivity and labour compensation across ten major sectors between 1996 and 2025, found that labour productivity increased by an average 1.44 per cent a year across the economy.

However, the overall figure concealed substantial differences between sectors, with several traditional industries recording long-term declines in productivity.

Information and communication was the strongest performer, with average annual labour productivity growth of 5.27 per cent, followed by financial and insurance activities at 2.33 per cent and wholesale and retail trade at 1.61 per cent.

By contrast, labour productivity declined by an average 0.90 per cent a year in agriculture, forestry and fishing, by 0.84 per cent in real estate activities and by 0.82 per cent in arts and other services.

Construction also recorded a small average annual decline of 0.10 per cent, the centre reported.

CypERC said the findings showed that productivity improvements had been concentrated in a relatively small number of sectors.

The same pattern emerged from Total Factor Productivity estimates, which measure the efficiency with which labour, capital and other inputs are combined.

TFP increased by an average 0.99 per cent a year across the economy through 2024, while information and communication recorded growth of 4.38 per cent.

Agriculture, construction, industry, and arts and other services, however, recorded negative TFP growth.

The study also examined whether workers’ compensation had kept pace with productivity.

Between 1996 and 2025, real labour compensation increased by an average 1.10 per cent a year when measured against sectoral output prices and by 1.12 per cent when adjusted using the Consumer Price Index.

This compared with average annual labour productivity growth of 1.44 per cent, the report showed.

The relationship varied significantly between sectors, the research centre explained.

Information and communication recorded substantial increases in both productivity and compensation, while agriculture experienced declining productivity alongside higher labour compensation over the longer period.

The gap between sectors became particularly evident during the latest period examined, from 2022 to 2025.

Economy-wide labour productivity grew by an average 1.70 per cent a year during those three years, while real labour compensation rose by 1.30 per cent relative to sectoral output prices and by 1.95 per cent when measured using the CPI.

Information and communication again led the way, with labour productivity increasing by 6.51 per cent a year.

Real labour compensation in the sector rose by 10.37 per cent when measured against sectoral output prices and by 9.93 per cent after CPI adjustment.

Agriculture moved in the opposite direction, with labour productivity falling by an average 4.06 per cent a year between 2022 and 2025.

Real labour compensation in the sector declined by 1.83 per cent relative to output prices and by 0.74 per cent when adjusted for the CPI.

The results indicated that stronger pay growth was not necessarily accompanied by equivalent productivity improvements across all sectors.

CypERC said sustained productivity growth was essential for Cyprus’ competitiveness, long-term growth in labour incomes and living standards.

The centre said the findings suggested that broad economy-wide measures alone might not be sufficient, given the considerable differences in performance between sectors.

The analysis pointed to innovation, technology adoption, and human capital development as important drivers of future productivity.

It also highlighted the need for targeted investment in digital infrastructure, innovation, research and development, education and skills, particularly in knowledge-intensive industries.

Addressing shortages of highly skilled workers could further support the expansion of the information and communications technology sector, CypERC said.

The latest findings come after Eurostat data earlier this week showed that Cyprus’ labour productivity per person increased by 1.1 per cent year-on-year in the first quarter of 2026, while productivity measured by hours worked rose by 0.5 per cent.

Across the European Union, labour productivity per employed person increased by 0.9 per cent year-on-year in the second quarter.

The Eurostat measure combines GDP and employment data to indicate how much real economic output is generated relative to the labour used.

The CypERC findings also come as Cyprus faces growing pressure to rely on productivity rather than employment growth to sustain economic expansion.

Cyprus Fiscal Council president Andreas Charalambous recently said that the country’s reliance on migration could not continue indefinitely and that productivity would increasingly determine economic performance.

“Until now, growth in Cyprus has been based to a large extent on migration, meaning an increase in employment. This is being exhausted,” Charalambous said.

“In the future, economic performance will depend on productivity. The domestic population is not increasing and migration has already reached high levels,” he said.

He said higher productivity would depend on investment and AI adaptation, as well as continuous workforce training.

The CypERC analysis concluded that sector-specific policies would therefore be needed alongside broader economic measures if Cyprus was to achieve stronger and more sustained productivity growth.

The centre said this would be particularly important for weaker sectors, while continued investment in skills, technology and innovation could help build on the gains already achieved in knowledge-intensive activities.