Cyprus

Economic growth is gradually decelerating but remains strong, buoyed by the services and construction sectors, partly financed with foreign direct investment. While employment is picking up, wage pressures and inflation remain low. A large fiscal surplus is helping to lower public debt after a sizable one-off increase related to the sale of Cyprus Cooperative Bank (CCB) last year. The removal of CCB’s non-performing loans (NPLs) and securitization of a large NPL portfolio has led to a sharp reduction in NPLs, earning Cyprus a sovereign rating upgrade back to investment grade status. Nevertheless, NPLs are still among the highest in the EU, public and private debt levels remain elevated and efforts to clean up bank balance sheets and build capital buffers are ongoing.