Cyprus' economic prospects improve despite rising inflation and oil price pressures

Cyprus’ short-term economic outlook improved in September 2026, supported by stronger property activity, increased card spending and rising retail sales volumes, although higher oil prices and weaker confidence among consumers and retailers continued to pose risks.

The Cyprus Leading Economic Index (CCLEI), compiled by the University of Cyprus Economics Research Centre (CypERC), increased by 0.28 per cent year-on-year in September, following a rise of 0.01 per cent in August.

“The further strengthening of the year-over-year growth rate of the CCLEI in September points to an improvement in Cyprus’ short-term economic outlook,” CypERC stated.

The improvement was supported by increases in property sale contracts, credit card transactions by Cypriots and the retail sales turnover volume index.

The Economic Sentiment Indicator for Cyprus, also compiled by CypERC, rose by 0.6 points in September compared with August, marking its sixth consecutive monthly increase.

The improvement reflected modest gains across most business sectors, with services confidence rising for a third consecutive month on stronger turnover expectations.

Construction confidence also edged up, supported by improved order books and hiring plans, while industrial confidence increased on better assessments of current orders and stock levels, despite lower production expectations.

However, retail trade confidence declined as businesses reported weaker recent sales and less positive expectations for the months ahead.

Consumer confidence also weakened, with households expressing greater caution about their financial prospects and showing less willingness to make major purchases, although their intentions to save increased.

The overall picture therefore remained mixed, with improving business sentiment across several sectors offset by caution among consumers and retailers.

The broader economic indicators also pointed to continued domestic activity, although rising prices and external pressures remained concerns.

Retail trade volume in Cyprus increased by 7.5 per cent year-on-year in August, according to Eurostat, recording the second-highest increase in the European Union after Sweden’s 7.7 per cent.

Estonia followed with growth of 6 per cent, while the EU average rose by 1.2 per cent and the euro area recorded an increase of 0.8 per cent.

Property activity also supported the leading index, with an increase in sale contracts pointing to continued demand in the real estate market.

However, tourism figures indicated that the sector continued to face pressure during the summer, amid disruption linked to the Iran war.

According to the state statistical service, tourism revenue increased by 4.6 per cent year-on-year in July to €536.50 million, despite a decline in arrivals from 589,116 to 582,754.

Average spending per tourist rose by 5.7 per cent to €920.66, but the average length of stay fell from nine days to 8.6 days.

Daily spending increased to €107.05 from €96.75 a year earlier, the report added.

For the first seven months of the year, tourism revenue fell by 7 per cent to €1.76 billion, compared with €1.89 billion in the same period of 2025.

Inflation also accelerated, reaching 3.7 per cent in September, up from 3.5 per cent in August, according to Cystat.

Prices increased by 0.74 per cent month-on-month, while inflation for the first nine months of the year stood at 2.3 per cent compared with the corresponding period of 2025.

Petroleum product prices rose by 25.8 per cent year-on-year, while electricity and water prices increased by 11.2 per cent, adding to cost pressures for households and businesses.

The government has announced a further €70 million package of measures intended to ease the cost of living, bringing the total value of support to about €160 million.

The measures include continued electricity subsidies and reductions in the excise duty on heating oil during the winter period.

Meanwhile, Cyprus’ external position showed signs of pressure, with the current account deficit widening to €1.31 billion in the second quarter of 2026 from €697.2 million a year earlier.

The Central Bank of Cyprus said the country’s net external debt position had nevertheless improved.

CypERC warned that international developments remained a significant source of uncertainty for the economy.

“The sharp rise in oil prices and broader geopolitical and economic uncertainty continue to pose significant downside risks to the growth of the Cypriot economy,” it stated.

Taken together, the September indicators point to an economy retaining momentum in several domestic sectors, particularly retail and property, while higher energy costs, tourism pressures and more cautious consumer sentiment continue to complicate the outlook.