Economic Overview

The economy of Cyprus is renowned for its agility and diversity in the face of the multiple challenges it has tackled in the past few decades, underscoring the strength of the small island nation. Both within traditional sectors and across new ones it is diversifying markets and attracting new investment, building a solid base for growth long into the future.

Following a decade of frequent economic shocks, Cyprus has shown consistent ability to rebound. The economy rebounded quickly after the global pandemic in 2020. Figures revised in 2024 tell a remarkable story with real GDP dropping by only 3.2% in 2020 and rocketing back to 11.4% growth in 2021. The economy also recovered swiftly after the banking crisis in 2013, returning to investment grade rating in 2018 and recording annual average real GDP growth of 5.8% in 2018-23. Cyprus quickly diversified following Russian sanctions after the war in Ukraine and is enjoying fast-growing new markets in both tourism and communications. During the past decade, the banks have consolidated, boosted and diversified their capital base and cut non-performing loans by over 95%. At the same time, the government looks set to bring debt below 60% of GDP by 2025, having paid off its debt to the IMF five years early in 2020. These achievements give the government the fiscal space to invest for a sustainable future.

Substantial financial support for the EU’s green and digital transition agenda has given renewed impetus to digitisation, liberalisation and green investments, while new incentives continue to be launched to attract a broad array of quality foreign investment. This fresh focus is set to raise the economy’s competitiveness further and leverage the eurozone economy’s highly educated population.

Key Sectors

The Cyprus economy is dominated by services, which accounted for 86.8% of gross value added in 2023, while industry accounted for 6.8%, construction 5.0% and agriculture, forestry and fishing 1.3%. Over the past two decades the economy has diversified. While tourism remains one of the most significant sectors – especially because of its wider impact on retail, transport, construction and employment – its value-added contribution, when narrowly defined as accommodation and food services, has now been overtaken by communications, real estate, financial services and professional services. The information and communications sector rose on average by an astonishing 17.1% per year in 2014-23, with big US companies including multinationals based in Ireland being the key markets.

Diversification has been made possible by the longstanding importance of Cyprus as an international business centre and a growing innovation hub. Cyprus has more than 850 start-ups and is home to seven of the EU’s 38 evolving Centres of Excellence, helping the information and communication services sector to expand rapidly from a low base, as the country takes advantage of its geostrategic location at the intersection of three continents. As in many advanced countries, the largest single sector is wholesale and retail trade, serving the general population as well as incoming tourists.

Challenges and Opportunities

The key opportunity in the short term is to continue to leverage the inflow of highly skilled people who have recently been drawn to Cyprus as a stable place to do business and which also has attractive visa and income tax regimes. With the support of the Deputy Ministry of Research, Innovation and Digital Policy established in March 2020, the government has launched a raft of initiatives to support competitiveness and the green transition, including renewables storage, photovoltaics and e-mobility. There are also incentives for film production and the island’s budding wine sector, while upgrading the island’s tourism offering continues.

Investment opportunities from start-ups and research centres are expanding, while prospects for headquartering have been boosted by the country’s reputation as a safe eurozone location in which to do business. The main challenge for the future is to harness the combined opportunities of renewable energy, offshore natural gas and the competitive electricity market due in 2025 with global energy links via the forthcoming Great Sea Interconnector.