The International Monetary Fund (IMF) has lowered its forecast for Cyprus’ economic growth in 2026 to 2.9 per cent from 3 per cent, while raising its projection for 2027 to 3.2 per cent from 3 per cent, according to its latest World Economic Outlook published on Tuesday.
The IMF also expects inflation in Cyprus to reach 3.7 per cent in 2026, before falling to 1.9 per cent in 2027, according to the October 2026 report.
The projections differ from those of the finance ministry, which expects the economy to grow by 3.1 per cent in 2026 and 2.9 per cent in 2027, according to the draft 2027 state budget presented to parliament by Finance Minister Makis Keravnos on October 12.
The IMF’s latest inflation forecasts are also higher than those published in its April 2026 report, when it projected inflation of 2.6 per cent for 2026 and 1.6 per cent for 2027.
Unemployment and current account outlook improve
The IMF has revised its expectations for Cyprus’ labour market, forecasting that unemployment will fall to 4 per cent in 2026, compared with its previous estimate of 4.6 per cent in April.
For 2027, the fund expects unemployment to edge up to 4.4 per cent, below its earlier forecast of 4.7 per cent.
The outlook for the current account deficit has also improved significantly, with the IMF expecting it to narrow to 7.7 per cent of gross domestic product (GDP) in 2026 and remain at the same level in 2027.
In April, the fund had projected a deficit of 9.3 per cent for 2026 and 10.3 per cent for 2027.
Global economy remains resilient despite Middle East conflict
The IMF said the global economy was once again demonstrating resilience, although performance remained uneven and the room for adjustment in the short term was rapidly narrowing.
“Economic activity in the first half of 2026 held up better than expected, despite the ongoing conflict in the Middle East and persistent pressures from trade tensions,” the fund said.
It expects global economic growth to slow from 3.5 per cent in 2025 to 3.1 per cent in 2026, before recovering to 3.4 per cent in 2027.
The 2026 forecast is unchanged from April, while the projection for 2027 has been revised upwards by 0.2 percentage points.
The IMF said the sources of global growth had become more concentrated, with 32 economies now accounting for 95 per cent of worldwide growth, compared with 54 economies in its April assessment.
Global inflation is forecast to rise to 4.7 per cent in 2026 before easing to 4.1 per cent in 2027.
The IMF said the temporary increase was mainly attributable to energy and food prices, adding that its global inflation projections had been revised upwards by a cumulative 0.7 percentage points.
Countries with limited direct exposure to the effects of the Middle East conflict and a strong presence in the technology boom are expected to maintain or strengthen their economic activity, the report said.
IMF warns of risks to growth and inflation
The fund cautioned that the balance of risks remained tilted towards weaker growth, particularly if the conflict in the Middle East persisted or intensified.
“A prolonged stalemate or further escalation of hostilities in the Middle East could keep energy and food prices high and volatile, reignite inflationary pressures, worsen fiscal and external balances, and weigh on growth,” the IMF warned.
Disruptions to energy infrastructure, cyberattacks and extreme weather events could further intensify these effects, it added.
Advanced economies face mixed prospects
Growth in advanced economies is expected to increase slightly from 2 per cent in 2025 to 2.1 per cent in 2026, before slowing to 1.8 per cent in 2027.
In the United States, the IMF forecasts growth of 2.3 per cent in both 2026 and 2027.
The projection for 2026 is unchanged from April, while the 2027 forecast has been raised by 0.2 percentage points.
In the euro area, growth is expected to reach 1.1 per cent in 2026 and 1.2 per cent in 2027, with both forecasts unchanged from the previous report.
“The forecast remains unchanged from the April 2026 World Economic Outlook for both years, reflecting continued weakness due to higher energy prices and low consumer confidence,” the fund said.
The United Kingdom is expected to record growth of 1.3 per cent in 2026, an upward revision of 0.5 percentage points from April, before slowing slightly to 1.2 per cent in 2027.
The IMF attributed the expected slowdown to higher energy prices and long-term interest rates, which are putting pressure on consumption and investment.
Japan’s economy is forecast to grow by 0.7 per cent in 2026, with the same rate expected in 2027.
Fiscal support measures are expected to partly offset the impact of higher energy prices, the report said.
Emerging economies expected to recover in 2027
Growth across emerging markets and developing economies is forecast to slow from 4.5 per cent in 2025 to 3.7 per cent in 2026, before recovering to 4.4 per cent in 2027.
The IMF expects growth in emerging and developing Asia to ease slightly.
China’s economy is forecast to grow by 4.5 per cent in 2026, as higher global oil prices, prolonged uncertainty and structural headwinds weigh on activity.
Policy support is expected to prevent a sharper slowdown, the fund said.
India, meanwhile, is expected to remain among the world’s fastest-growing major economies, with growth forecast at 7 per cent in 2026.