Unemployment in Cyprus hit a record low of 3.6 per cent in the second quarter of 2026, leaving little room to grow the workforce, while high housing costs may deter both local and foreign workers, the Central Bank of Cyprus (CBC) said in its latest economic bulletin.
With the labour market close to full employment, the economy can no longer grow simply by hiring more people, and future growth depends entirely on raising productivity per worker, according to the analysis by CBC economist Marios Polemidiotis. Demographic trends mean the scope to increase the number of workers has run out.
For the first time, the bulletin identifies the housing problem as a threat to the labour market. Higher housing costs and a limited supply of homes may discourage lower-income Cypriot workers and foreign workers alike, reducing the mobility and availability of labour, it says. This could add to wage pressures on businesses, either through higher living and housing costs for staff or because of labour shortages in some sectors and occupations.
The ageing population, a trend across Europe, is expected to limit future growth in the domestic workforce. With unemployment already very low, there is much less room to raise employment by drawing in people who are not working, the bulletin says. A sharp rise in employment among people aged 55 to 64 contributed more than any other age group to overall employment growth, which it says underlines the importance of keeping older people in work as labour supply may come under pressure in the coming years.
Foreign workers have made a significant contribution to meeting the economy’s needs, which means future labour supply may be affected by developments in Cyprus and abroad, according to the bulletin. Changes in investment flows or stronger competition between countries for skilled workers could affect the availability of labour, and any slowdown in migration combined with continued strong demand could increase pressure on labour supply.
The bulletin also identifies the economy’s relatively heavy reliance on a few export-oriented service sectors that are highly exposed to international demand as one of its most significant challenges.
To sustain growth, it proposes encouraging more women, older people and young people into work through more affordable childcare, flexible working, better parental leave arrangements and more apprenticeships, traineeships and vocational training.
It also calls for better skills development and a closer match between labour supply and demand, through policies that strengthen STEM, digital and artificial intelligence skills, training tailored to market needs, faster recognition of professional qualifications and digital tools that match workers to jobs.
Keeping a flexible framework for economic migration, with simpler procedures and targeted recruitment for high-demand occupations, could help ensure an adequate labour supply as the economy continues to diversify within the services sector, the bulletin says.
Improving the availability and affordability of housing could make the country more attractive to skilled staff, it adds, and continuing and expanding policies that increase the supply of homes could help the labour market function better.
