Another significant external challenge for Cyprus is the new developments in the Middle East, economist Tassos Yiasemides told CNA, adding that if the crisis drags on, coupled with a number of other factors, it will slow down the growth of the Cypriot economy.

When asked to comment on the latest developments in the Middle East and their potential impact on the Cypriot economy, Mr. Yiasemidis said that the renewed tension in U.S.-Iran relations brings one of the most significant sources of uncertainty for the global economy back into the spotlight.

He added that it is no coincidence that the latest update to the International Monetary Fund’s (IMF) forecasts, announced on Wednesday, July 8, “caps expected global economic growth at 3% for 2026, noting that geopolitical conflicts now pose one of the greatest risks to international economic stability.”

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“At a time when markets were trying to regain stability following the trade tensions and inflationary pressures of recent years, geopolitical instability in the Middle East is creating new risks, primarily through energy, transportation, and international trade,” he added.

He also said that the IMF has revised its global inflation forecasts upward, mainly due to rising energy costs and uncertainty in the oil markets.

“It is inevitable that, if the crisis drags on and is accompanied by persistently high energy prices and a broader slowdown in the global economy, there will be a negative impact on the growth rate of the Cypriot economy as well,” he emphasized.

He also noted that increased production and transportation costs, a potential slowdown in economic activity in major European markets, and investor caution “are expected to limit growth momentum in the coming months, resulting in a lower growth rate than initially forecast.”

 According to Mr. Yiasemidis, this underscores the need for prudent fiscal policy, better management of expenditures, accelerating reforms, and strengthening the resilience of the Cypriot economy against external crises; while, at the same time, as he noted, “there is a growing need to modernize the state’s social policy and protect citizens’ standard of living through prudent and targeted policies.”

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He added that the Cypriot economy is affected by its heavy dependence on energy and fuel imports, as rising international oil prices are passed on to the cost of electricity, transportation, business expenses, and, ultimately, the prices of goods and services.

At the same time, he noted that uncertainty could also affect other sectors that are key pillars of the Cypriot economy, such as tourism, shipping, and, more broadly, investment.

“The big question is the duration and intensity of this new surge, as markets are particularly ‘sensitive’ to such events,” he added.

Economic fundamentals remain strong 

Continuing, Mr. Yiasemidis told CNA that the Cypriot economy has “strong fundamentals and is better equipped to manage international crises and uncertainty.”

“Fiscal stability, the improvement in the credit rating, the resilience of the banking system, and the continuous inflow of foreign investment create a strong safety net against external shocks,” he added.