Cyprus’ economic outlook could be significantly affected by prolonged instability in the region

Macro/Political:

• The Greek PDMA announced that during the 52W T-Bills auction of EUR 400mn which took place yesterday, the total bids reached EUR 967mn and the amount finally accepted was EUR 500mn at a uniform yield of 1.97% (vs 2.03% in the previous 52W T-Bills auction in December 2025).
  Source: pdma.gr

• In January 2026, the weighted average interest rate on new deposits stood at 0.32%, while the corresponding rate on new loans increased to 4.67%. The interest rate spread between new deposits and loans increased to 4.35 percentage points.
  Source: BoG

Markets:

• In a commentary on large Greek banks, including Alpha Bank, Eurobank, Piraeus Bank and National Bank of Greece, DBRS highlighted that solid FY25 results provide buffers against heightened external risks in 2026, a year expected to be marked by geopolitical and macroeconomic uncertainty. More specifically, the agency noted that continued loan growth and further progress in diversifying revenues toward fee income should help mitigate ongoing pressure on operating expenses and a potential increase in credit costs in 2026. Furthermore, cost of risk (CoR) and asset quality metrics improved further in 2025, supported by strong credit expansion. However, risk indicators may come under pressure in 2026, as a potential escalation of external risks could weigh on segments where Greek banks have meaningful exposure, most notably shipping and tourism.
  Source: DBRS

Macro/Political:

• Cyprus’ economic outlook could be significantly affected by prolonged instability in the region, according to Yesenn El-Radhi, Vice President of Global Sovereign Ratings at Morningstar DBRS, in an interview with Stockwatch.com.cy. Due to its geographical proximity to the Middle East and reliance on tourism, foreign capital inflows and energy imports, Cyprus could face economic pressure if regional tensions persist. Mr. El-Radhi identified three main channels through which a prolonged conflict could affect the economy: a decline in tourism arrivals, higher energy costs and a slowdown in foreign investment. Despite these risks, Cyprus’ strong fiscal position is seen as an important buffer against external shocks. The overall assessment of the Cypriot economy remains generally positive, with strong growth in recent years that is no longer driven solely by tourism, as other service sectors such as information technology and communications play an increasingly important role. Growth is expected to continue, supported by rising employment and major investment projects, particularly in tourism and real estate. However, Cyprus’ small economic size makes it vulnerable to external shocks, especially due to its dependence on tourism and foreign capital inflows. On public finances, budget surpluses are expected to continue, partly supported by higher tax revenues from companies relocating to Cyprus, although risks remain related to large energy projects and future funding needs for climate adaptation. El-Radhi also noted potential pressures on bank loan portfolios and outlined factors that could lead to either an upgrade or downgrade of Cyprus’ credit rating, while stressing the importance of structural reforms to strengthen the country’s economic resilience.
  Source: stockwatch.com.cy

• According to seasonally adjusted data released by CyStat, in February 2026 the number of registered unemployed persons in Cyprus decreased to 9.773 persons compared to 9.832 in previous month and 10,190 in February 2025.
  Source: Cystat