S&P leaves Cyprus’ credit rating unchanged despite Middle East conflict

Credit rating agency S&P has left its rating of Cyprus and its estimation of the island’s economy unchanged in its latest assessment, saying that this decision was taken despite the ongoing conflict in the Middle East.

The island’s credit rating remains unchanged at “A-/A-2” for both long-term and short-term debt, while its outlook remains “positive”.

“We expect Cyprus’ economy will weather the fallout from the conflict in the Middle East,” it said, forecasting that the island’s economy will grow by about 2.8 per cent this year, “despite the conflict in the Middle East”.

This, it said, is because “domestic demand will become a more prominent driver of growth, with private consumption benefiting from higher real wages and private investment supplemented by public investments”.

It did, however, note, that energy prices “represent the main pressure point for Cyprus’ economy in the current geopolitical situation”, because “the country is highly dependent on oil imports”.

To this end, it pointed out that energy costs in Cyprus are “already among the EU’s highest”.

It then said that it expects Cyprus’ gross domestic product to grow by an average rate of 2.8 per cent per year between 2026 and 2029, asserting that “a healthy labour market – characterised by high employment and real wage growth – is expected to support private consumption”.

“This provides a buffer against potential negative spillover effects from the Middle East conflict, which could affect Cyprus’ significant tourism and shipping sectors, as well as oil prices, though we currently view these effects as relatively short term in nature,” it said.

However, it did state that it now expects Cyprus’ current account deficit to widen to around nine per cent of GDP this year, with this “driven by the conflict in the Middle East and Cyprus’ reliance on energy imports”, having earlier been expected to hover slightly above seven per cent of GDP.

This figure, it said, will “normalise” back to around seven per cent of GDP between 2027 and 2029.

Reacting to the news, Finance Minister Makis Keravnos said that “the assessment … in conditions of instability of the economic and geopolitical environment, which is caused by ongoing wars, with potential risks for our economy, constitutes a separate and independent confirmation of the government’s rational economic policies”.

This economic policy, he said, is “based on fiscal discipline, the reduction of public debt, [and] a balanced development policy, which supports businesses and households, creating a favourable climate for investments”.

“I express my satisfaction and send the message that Cyprus is a pillar of security and stability as we look forward to welcoming our tourists and visitors to a safe, European Cyprus,” he said.