Cyprus economic sentiment bolstered by retail and construction sectors

Consumer confidence in Cyprus climbs for second monthCyprus’ economic climate improved marginally in June 2026, with the Economic Sentiment Indicator rising by 0.2 points compared with May, according to the latest monthly business and consumer survey published by the Economics Research Centre of the University of Cyprus (CypERC) The modest increase was driven primarily by stronger sentiment in retail trade and construction, as well as a further improvement in consumer confidence, developments that offset a deterioration in business confidence within the services sector. According to the survey, businesses in both retail trade and construction assessed their current situation more positively than in the previous month and expressed greater optimism about their activity over the next three months. By contrast, sentiment in the services sector weakened, reflecting less favourable assessments of businesses’ recent economic performance and lower expectations regarding turnover in the months ahead. The report also showed that the business climate in the manufacturing sector remained broadly unchanged compared with May. The deterioration in assessments of current orders was balanced by more favourable evaluations regarding stocks of finished products. Consumer confidence strengthened for a second consecutive month, with households revising upwards their expectations for both their own financial situation and the outlook for the Cypriot economy. However, consumers’ assessments of their recent financial situation were less favourable than those recorded in the previous month. Despite the improvement in overall economic sentiment, the Economic Uncertainty Indicator increased during June. Even so, uncertainty remained below the levels recorded in March and April, the report showed. The rise in uncertainty stemmed mainly from households and businesses operating in the services and construction sectors. Nevertheless, uncertainty levels continue to be considered relatively low, particularly among consumers and construction-sector businesses. The survey was conducted by the Economics Research Centre of the University of Cyprus (CypERC) in cooperation with RAI Consultants Ltd as part of the Joint Harmonised European Union Programme of Business and Consumer Surveys. The programme is funded by the European Union, the Finance Ministry and the University of Cyprus. The findings come at a time when Cyprus continues to display resilience despite a more challenging international environment, although recent assessments indicate that economic growth is likely to moderate during the remainder of the year. Earlier this week, the International Monetary Fund (IMF) said that Cyprus remains strong in the face of geopolitical headwinds, but warned that higher energy prices and softer tourism activity are expected to slow economic expansion. The IMF forecast that gross domestic product growth will ease to 2.6 per cent in 2026, compared with 3.8 per cent in 2025, as elevated energy costs and regional tensions weigh on household incomes, tourism demand and business confidence. The fund also outlined a downside scenario in which a prolonged crisis in the Gulf region could reduce growth further to 1.7 per cent. Inflation, which had fallen to 0.8 per cent in 2025 following favourable developments in energy and goods prices, is expected to rise again as higher energy costs linked to conflict in the Middle East filter through the economy. According to the IMF, the harmonised inflation rate is projected to increase to 3.5 per cent this year before easing to 1.5 per cent in 2027. The organisation also pointed to signs of weakening tourism activity, a development that aligns with growing concerns among tourism stakeholders over softer demand from some source markets. At the same time, the IMF highlighted the continued strength of Cyprus’ public finances, noting that budget surpluses have been maintained and public debt has fallen below 60 per cent of GDP. The financial sector was also assessed positively, with banks benefiting from strong capital and liquidity buffers as well as improving asset quality. Despite expectations of slower growth, the IMF said that Cyprus remains one of the stronger-performing economies in the European Union, supported by robust domestic demand and resilient services exports, particularly in the information and communication technology and tourism sectors. The fund also commended the authorities for rebuilding fiscal buffers and placing public debt on a sustainable downward trajectory following years of disciplined fiscal management. It further observed that Cyprus has made a remarkable recovery since the 2013 banking crisis, with per capita GDP relative to the EU average returning to pre-crisis levels. Looking ahead, the IMF stressed the importance of improving the efficiency of public spending and taxation, prioritising high-quality public investment and maintaining discipline in public-sector wage growth. It also recommended that support measures for households remain temporary and carefully targeted. The organisation welcomed Cyprus’ recent comprehensive tax reform package and the proposal to build financial assets within the social security fund, describing both as positive steps towards strengthening long-term economic resilience. Taken together, the latest CypERC survey and the IMF assessment suggest that while confidence among businesses and consumers has improved modestly, the Cypriot economy faces a more demanding external environment that will test its resilience during the second half of 2026.