The European Commission's recent analysis highlights Cyprus's resilient economy amid risks from conflicts in the Middle East. Cyprus achieved a 3.8% GDP growth in 2025, with forecasts of 2.3% and 2.7% growth in 2026 and 2027 respectively, largely driven by private consumption. Inflation is expected to rise to 3.6% in 2026 due to higher energy prices before easing to 2.2% in 2027. The labour market remains robust with unemployment stable at 4.2%, the lowest in a decade.

Public finances are sound, recording a 3.4% surplus in 2025 and forecasted surpluses in the coming years, while public debt is projected to drop below 50% of GDP by 2027. The banking sector shows strength with the highest CET1 capital ratio in the EU at 25.8% and non-performing loans falling below the EU average. However, the Commission expressed concerns about recent legislative changes in Cyprus's foreclosure framework that could weaken the financial system's effectiveness and impact state aid recovery.

Cyprus maintains a strong cash buffer of €1.7 billion and a positive credit rating from major agencies. The Commission also noted the record oversubscription of a recent €1 billion 10-year bond issue, reinforcing confidence in the country’s fiscal stability despite the uncertain geopolitical environment.