Cyprus has an open, free-market, services-based economy with some light manufacturing. Cyprus' accession as a full member to the European Union as of May 1, 2004, has been an important milestone in its recent economic development. The Cypriots are among the most prosperous people in the Mediterranean region. Internationally, Cyprus promotes its geographical location as a "bridge" between three continents, along with its educated English-speaking population, good airline connections, and telecommunications.
In the past 20 years, the economy has shifted from agriculture and light manufacturing to services. Currently, agriculture makes up only 2.4% of the GDP and employs 8.2% of the labor force. Industry and construction contribute 18.3% and employ 20.5% of the labor force. The services sector, including tourism, contributes 79.3% to the GDP and employs 71.1% of the labor force. In recent years, the services sector, and financial services in particular, have provided the main impetus for growth, while tourism has been declining in importance. Manufactured goods account for 58.3% of domestic exports, while potatoes and citrus constitute the principal export crops. The island has few proven natural resources. Trade is vital to the Cypriot economy and most goods are imported. The trade deficit increased in 2008, reaching $9.1 billion. Cyprus must import fuels, most raw materials, heavy machinery, and transportation equipment. More than 67% of its imports come from the European Union, particularly Greece, Italy, and the United Kingdom, while 1.7% come from the United States.
GNP growth rates have gradually begun to decline as the Cypriot economy has matured over the years. The average rate of growth went from 6.1% in the 1980s, to 4.4% in the 1990s, to 3.6% from 2000 to 2008. In the last couple of years (2007 and 2008) growth has remained fairly strong at around 4.4% and 3.8%. Cyprus is the only country in the Eurozone expecting positive growth in 2009, although it is forecast to remain barely above zero (0.3%) due to the global financial and economic turmoil. Cyprus’ prudent Central Bank and conservative bankers have shielded it from the excesses of other financial centers. Inflation soared to 4.4% in 2008 but is expected to drop to around 0.9% in 2009 as the domestic economy slows down. Cyprus continued to have one of the lowest unemployment rates in the EU during 2009 at around 4.7%, although this is considerably higher than the 3.8% recorded in 2008. Public finances have been in a fairly good shape in recent years, with an almost balanced budget (1.0% surplus in 2008, and an estimated 0.8% deficit in 2009) and relatively low public debt (49.3% of GDP in 2008 and on its way down).
Cyprus has been a successful member of the Eurozone since January 1, 2008, when it replaced the Cyprus Pound with the Euro. Joining the Eurozone was a major accomplishment for the Cypriot economy, resulting in such benefits as a higher degree of price stability, lower interest rates, reduction of currency conversion costs and exchange rate risk, and increased competition through greater price transparency. The final conversion exchange rate between the Cypriot pound and the Euro was one Euro per 0.585274 Cyprus pounds. The following website offers additional information on the mechanics of Cyprus's adoption of the Euro: http://www.euro.cy/
Information by U.S. Department of State
