The recovery has been moderate and mainly driven by internal demand, while inflation has remained negative. Real GDP grew by 1.6% in 2015. However, in nominal terms, economic growth was flat due to subdued price developments, which are reflected in a negative consumer price inflation rate (-1.6%). Private consumption has been one of the main driving forces of growth, with investment growth (excluding ship registrations) remaining low, government consumption contained, and net exports still subdued.
Cyprus is experiencing excessive macroeconomic imbalances. It is characterised by large private, public, and external debt overhang, in the context of high unemployment. Vulnerabilities remain also in the financial sector, which is burdened with a non-performing loans ratio close to 50%. The macroeconomic adjustment programme completed in March 2016 was instrumental to contain economic risks and imbalances. The fiscal consolidation targets under the programme have been met, while the modest economic recovery is set to strengthen on the back of cyclical factors. However, investment and potential growth remain subdued, while legacy debts are not declining. The continuation of structural and fiscal reforms is needed to ensure sustainable growth, public finances, and private sector deleveraging. Reducing non-performing loans will require increased debt restructuring efforts and effective use of the insolvency and foreclosure frameworks.
Read a complete analysis of Cyprus' economy in the country report 2016 [2 MB]
More detail can be found in the regular reports on the state of implementation of Cyprus' financial assistance programme
2015 recommendations in brief
In order to avoid duplication with reform measures set out in the programme and consistently with the approach followed in the previous years, the Commission has not issued additional recommendations to Cyprus in the framework of the European Semester.