Middle East tensions add pressure to Cyprus economy
Renewed tensions in the Middle East have added another layer of uncertainty for Cyprus, with economist Tassos Yiasemides warning that a prolonged crisis could slow the island’s economic growth. Speaking to the Cyprus News Agency (CNA), Yiasemides said the latest flare-up in US-Iran relations has brought geopolitical risk back to…
Renewedtensions in the Middle Easthave added another layer of uncertainty for Cyprus, with economistTassos Yiasemideswarning that aprolonged crisiscould slow the island’seconomic growth. Speaking to the Cyprus News Agency (CNA), Yiasemides said the latest flare-up in US-Iran relations has broughtgeopolitical riskback to the centre of the global economic outlook, at a time when markets were only beginning to stabilise after years of trade tensions and inflationary pressure. He referred to the International Monetary Fund’s (IMF) latest forecasts, released on Wednesday, which “limit the expected growth of the global economy to 3 per cent for 2026, emphasising thatgeopolitical conflictsnow constitute one of the greatest risks tointernational economic stability. ”This renewed instability, according to Yiasemides, is already creating risks throughenergy, transport and international trade. “At a time when markets were trying to regain stability after the trade tensions and inflationary pressures of recent years, geopolitical instability in the Middle East is creating new risks, mainly through energy, transport and international trade,” he said. At the same time, he noted that the IMF has revised itsglobal inflation forecasts upwards, mainly because of higher energy costs anduncertainty in oil markets. For Cyprus, he mentioned, the concern is not only the crisis itself, but how long it lasts and how strongly it feeds into prices, business costs and global demand. “It is inevitable that, if the crisis is prolonged and accompanied by the maintenance ofhigh energy pricesand a general slowdown in the global economy, there will be a negative impact on thegrowth rate of the Cypriot economy,” Yiasemides said. The pressure, he explained, would come through several channels. Production and transport costscould rise, economic activity in Cyprus’ main European markets could weaken, while investors may become more cautious. As a result, growth in the coming months could fall below initial expectations. Cyprus is especially exposed because of itsdependence on imported energy and fuel. Higher international oil prices are gradually passed on to electricity, transport and business expenses, before reaching consumers through the prices of goods and services. The uncertainty could also affect some of the economy’s key sectors, includingtourism, shipping and investment, Yiasemides noted. “The big question is the duration and intensity of the new flare-up, with markets appearing particularly ‘sensitive’ to such events,” he said. For that reason, he stressed the need forprudent fiscal policy, better management of public spending, faster reforms and stronger protection against external shocks. He also pointed to the need for a more modern social policy, aimed at protecting living standards through targeted measures. However, Yiasemides also emphasised that “Cyprus is not facing the new uncertainty from a weak position. ”The economy, he said, has “significant fundamentalsand can better manage international crises and uncertainty,” supported byfiscal stability, an improved credit rating, a more resilient banking system and continued foreign investment. These factors, he added, create “a strong protection net against external turbulence,” even as risks from the international environment increase.