Cyprus economy slows under pressure from Middle East crisis

The Cyprus Composite Leading Economic Index (CCLEI) recorded a marginal year-on-year decrease in March 2026, signalling a potential shift in economic momentum, according to the Economics Research Centre of the University of Cyprus (CypERC).

Specifically, the research centre on Friday reported that the CCLEI fell by 0.01 per cent year-on-year in March 2026, reversing the positive trend observed in previous months.

This development follows year-on-year increases of 0.72 per cent in February and 1.78 per cent in January 2026, reflecting a weakening trajectory.

The Economics Research Centre (CypERC) stated that the decline reflects the effects of recent conflicts in the Middle East, which have begun to weigh on economic conditions.

The report showed that the economic climate in Cyprus and the euro area deteriorated compared with March 2025, contributing to a fall in the weighted Economic Sentiment Indicator.

At the same time, energy prices exerted a negative influence, as Brent crude oil recorded a significant year-on-year increase following a period of declines.

Tourism also came under pressure, with tourist arrivals adversely affected by flight cancellations, further dampening the index.

In addition, the temperature-adjusted electricity production index declined, adding to the negative contributions recorded in March.

However, some domestic indicators offered partial support, as property sales contracts, credit card transactions and retail sales volume all contributed positively to the index.

Overall, the findings point to a potential slowdown in the growth rate of the Cypriot economy, amid heightened geopolitical uncertainty and external pressures.

The CCLEI is designed to provide early warning signals of turning points in business cycles, capturing shifts in economic activity before they become evident in broader data.

It is composed of key variables including Brent crude oil prices, economic sentiment indicators, property sales, tourist arrivals, credit card transactions, retail trade volumes and electricity production.

Relatedly, figures released this week showed that inflation in Cyprus increased in March 2026, indicating emerging price pressures across the economy.

According to the state statistical service, the Consumer Price Index rose by 1.21 points to 101.07 units, compared with 99.86 units in February.

Annual inflation reached 1.2 per cent in March, while a harmonised estimate placed it slightly higher at 1.5 per cent, up from 0.9 per cent in February.

Despite the increase, inflation remained below the 2.1 per cent recorded in March 2025, suggesting that price pressures are still relatively contained.

At the same time, employer representatives warned that the economic fallout from the Middle East crisis could be greater than initially expected, following discussions between employers federation Oev and Finance Minister Makis Keravnos.

Uncertainty has also deepened in the tourism sector, where the new season has begun under a cloud, with stakeholders awaiting clarity on support measures.

Earlier this month, the Cyprus Fiscal Council issued a stark warning over the broader outlook.

“The developments in Iran are quite likely to exert significant pressures on the Cypriot economy,” the council stated.

“Although important parameters remain uncertain, immediate preparation is required to address the consequences,” it added.

“With the possibility of the conflict continuing over time, and even evolving into an asymmetric war, the response to developments should take into account the high degree of uncertainty that characterises current data,” the council continued.

“The risks that are forming are spreading across all aspects and industries of the economy,” the council warned.

Despite these risks, the council stated that the government retains the capacity to respond effectively, supported by an improved fiscal position.