**NICOSIA, CYPRUS** – The escalating geopolitical turmoil in the Middle East has prompted a stark downward revision of Cyprus' economic growth projections, with the island nation's vital tourism sector bearing the brunt of the fallout. The Central Bank of Cyprus, in its latest macroeconomic assessments released on Tuesday, cited the regional conflict as a principal impediment to anticipated economic performance through to 2028. In response, the government is actively exploring measures to shield its tourism industry from the escalating pressures.
The repercussions of the protracted conflict are multifaceted, primarily manifesting as heightened geopolitical uncertainty and a subsequent surge in oil prices. These factors have directly impinged upon international travel, leading to significant flight disruptions and a palpable weakening of external demand. Consequently, the Central Bank has recalibrated its GDP growth forecast for 2026, anticipating a more modest 2.7% expansion, a notable dip from the previously projected 3.8% and a full 0.3 percentage points below the December forecast. Simultaneously, inflation for 2026 is now expected to climb to 2.7%, a figure more than triple the 0.8% recorded in 2025 and a full percentage point higher than initially anticipated. Sectors intrinsically linked to international engagement, including tourism, shipping, construction, and real estate, are identified as being particularly susceptible due to their reliance on global flows and foreign investment, with services exports forecast to experience a downturn. The baseline scenario, predicated on the conflict enduring for approximately two months at a high intensity, suggests that domestic demand, bolstered by rising real household incomes and a robust labour market, will serve as a crucial stabilising force. Unemployment, meanwhile, is projected to remain relatively stable, hovering around 4.5% throughout the 2026-2028 period.
The immediate impact on the tourism industry has been acutely felt, with a wave of cancellations recorded for the months of March and April, and even some summer bookings being rescinded. Demand for new travel arrangements has consequently remained subdued. Coastal hubs like Limassol and the popular tourist town of Paphos have experienced the sharpest effects, with year-round hotels reporting direct booking cancellations directly attributable to the disruption in air travel. In a significant move reflecting the severity of the situation, hotel operators have proposed extending the temporary suspension of work for their employees for an additional two months, pushing the potential end date to the close of April.
However, there are nascent signs of a gradual restoration of air connectivity. Several major European carriers, including the Lufthansa Group (encompassing Lufthansa, Austrian, Edelweiss, and Eurowings), British Airways, easyJet, and Transavia, have recommenced operations to and from Cyprus. Emirates has also reinstated its daily Larnaca–Dubai service, offering a vital link to the Gulf. While these developments are encouraging, certain airlines, such as Gulf Air, Etihad, and Qatar Airways, have yet to resume their services. Flights that were previously cancelled included routes to and from Israel, Qatar, and Bahrain, underscoring the direct impact of regional instability. Currently, direct air links are predominantly available to the United Kingdom and Greece. The Cyprus airports operator, Hermes, has reported a gradual increase in activity, with 102 flights operating at Larnaca Airport and 36 at Paphos Airport as of Monday, signalling a tentative return towards normalcy. Despite these efforts, the overarching sentiment within the tourism sector remains one of caution, with ongoing concerns about the sustainability of bookings and the broader economic ramifications of prolonged regional instability.