Fitch expects Cyprus to record a general government surplus of 3.2% of GDP in 2026, the highest in the euro zone. Government debt is forecast to decline to 46.3% of GDP in 2026 from 52.4% in 2025, then fall further to 36.6% in 2028.

The agency projects GDP growth of 3% a year from 2026 through 2028, above the euro-zone average, supported by domestic consumption and continued strength in services. Tourism inflows, Fitch said, recovered quickly after slowing at the start of the Middle East conflict.

Inflation remains a challenge, reflecting Cyprus’ heavy reliance on imported fossil fuels and elevated service prices. Harmonized inflation reached 5.2% in September, up from 0.9% in February. Fitch expects it to average 2.5% in each of 2026, 2027 and 2028, compared with 4% this year.

The current account deficit is forecast to average 8.1% of GDP in 2026-28. Fitch identified inflation pressures and their effect on consumption as short-term risks, with external vulnerabilities posing a key medium-term challenge.