GDP growth improves in Q2

GDP reading: According to a preliminary estimate, GDP growth accelerated to 3.6% year on year in Q2, from 3.0% in Q1. On a working-day and seasonally adjusted quarter-on-quarter basis, economic growth slowed notably to 0.5% in Q2, compared to the previous quarter's 1.4% expansion.

Hospitality and trade support momentum: The flash release lacked a detailed breakdown, but the statistical office reported that hospitality, information and communication plus wholesale and retail trade supported year-on-year growth. Meanwhile, high-frequency data for the external sector paints a mixed picture: Tourist arrivals growth accelerated to double digits in Q2, while merchandise exports grew at a markedly slower pace, likely as the effect of frontloading ahead of greater U.S. tariffs faded. A comprehensive breakdown is set to be released on 2 September.

Cyprus to remain regional outperformer: Following a strong H1, our Consensus is for GDP growth to lose some steam in H2. Nonetheless, the economy will remain one of the fastest growing in the Euro area, backed by healthy domestic demand.

Panelist insight: Analysts at the EIU commented on risks to the outlook: “Potential downside risks are further wildfires, such as those seen in July, which could damage infrastructure and, depending on their severity, deter tourist arrivals. Further, a failure of the Israel-Iran ceasefire and resumption of hostilities could push up energy prices and inflation globally and in Cyprus. Two UK air bases in Cyprus, which are used by the US, could become targets if hostilities resumed, which again would be net negative for tourism and wider economic sentiment towards the market.”

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