The Cypriot economy can be considered strong, with a GDP of 26.2 billion € in 2004, but is still susceptible to external shocks. Although the most important economic activity in the past was agriculture, at present the agricultural sector is declining and the economy is now dominated by the service sector, mainly tourism and financial services. Erratic economic growth rates over the past decade reflect this reliance on tourism, which often fluctuates with political instability in the region and economic conditions in Western Europe.

At present, the economic policy in Cyprus is focused on meeting within the next two years the criteria to join the European Exchange Rate Mechanism (ERM2). However, slow growth in tourism activities and poor fiscal management have resulted in growing budget deficits since 2001.
Overall, the Cypriot economy continued to expand through 2004 and it was the first time since 2000 that it recorded a higher growth rate compared to the previous year. Growth in some key sectors over 2004:

• The sector of Agriculture, Hunting and Forestry is exhibiting a negative growth rate of –0.5% in its value added, compared to 5.6% in 2003.
• Construction continued its expansion for a fourth consecutive year, recording a marginally reduced 5.2% growth in 2004, compared to 5.3% in 2003.
• The sectors of Wholesale and Retail trade, Transport Storage and Communication and Financial Intermediation recorded exceptionally high growth rates in 2004. Hotels and Restaurants is the only activity in the tertiary sector that shows a negative growth rate for a third consecutive year. In particular, the negative growth rate in 2004 is estimated at –2.8% with –4.2% negative growth rate in 2003.

The main agricultural products of the country include cereal grains, olives, citrus, potatoes, and cotton; as well as deciduous fruits and wine grapes. Sheep, goats, poultry, pigs, and some cattle are bred. There is also a strong manufacturing economy (processed foods and beverages, paper, chemicals, textiles, metal products, and refined petroleum). Mineral resources include copper, pyrites, chrome, asbestos, and gypsum. Timber production is also considered to be important.

Due to the small domestic market size and the open nature of the economy of Cyprus, access to international markets is considered to be of high economic importance. As a result, trade has always been one of the most important economic sectors, contributing considerably to the economic growth of the country. In 2003 exports accounted for about 7% of the total GDP. During the same year, the value of foreign trade was 4.750 mil. €, showing a decrease of 7% with regard to 2002. This reduction was mainly due to the decrease in domestic exports, which declined by 7%, reaching 366 mil. € in 2003, in comparison to 395 mil. € in 2002. Total imports also decreased by 7%, falling to 3.934 mil. € in 2003 from 4.228 mil. € in 2002. Exports of manufactured products (i.e. industrial products of manufacturing origin) constitute the bulk of domestic exports, representing 58% of total exports in 2003. The most important products exported during 2003 were pharmaceuticals (66.3 mil. €), clothing (17 mil. €), cement (15.3 mil. €), cigarettes (12 mil. €), paper products (10.2 mil. €), plastic products (6.8 mil. €) and furniture (6.8 mil. €). In 2003, exports of raw and processed agricultural products accounted for 21% and 16% of total domestic exports respectively. Exports of raw agricultural products increased to 75 mil. € from 63 mil. € in 2002. Citrus fruit and potatoes were the most important products, with exports valued at 32.3 mil. € and £25.5 mil. €, respectively. Exports of processed agricultural products remained at about the same levels in 2003, corresponding to 56.1 mil. €. The most important processed agricultural products exported were halloumi cheese, wines and fruit and vegetable juices.

The countries of the European Union are the most important markets for Cyprus, corresponding to 54% (199 mil. €) of exports in 2003. The major EU export market is the United Kingdom, followed by Greece, Germany and the Netherlands. The Arab Countries are the second most important market group, corresponding to 17% of exports in 2003. The major markets in this group are Jordan, Lebanon, the United Arab Emirates, Saudi Arabia, Kuwait and Egypt.
Imports of intermediate inputs (raw materials) and consumer goods make up for most of total imports, accounting for 31% and 29% of the total imports, respectively. Other imported products are by transport equipment (14%), capital goods (11%), and fuels and lubricants (10%). In 2003, the imports of raw materials (intermediate inputs) reached 1,234 mil. € (1,232.5 mil €. in 2002).

he majority of imports were raw materials for the manufacturing sector. Imports of consumer goods declined to 1,132.2 mil. € compared to 1,213.8 mil. € in 2002. Imports of capital goods reached in 2003 447.1 mil. € from 420 mil. € in 2002. Imports of transport equipment and parts declined and reached 556 mil. € in 2003 compared to 675 mil. € in 2002. Passenger motor vehicles accounted for nearly half of the total transport equipment imports, followed by motor vehicles for the transport of goods and parts for transport equipment. The value of imports of fuels and lubricants declined to 385.9 mil. € from 459mil. € in 2002.

Tourism is central to the Cypriot economy. Revenue from tourism reached 193 mil. € in June 2005 compared to 186 mil. € in June 2004, recording an increase of 3,7%. For the period January-June 2005, revenue from tourism was estimated at 633 mil. € compared to 629 mil. € in the corresponding period of 2004, recording an increase of 0.6% . During 2003, hotels and restaurants experienced a reduction both in terms of economic output and value added. This is due to a decrease in the number of tourists visiting Cyprus and to the number of overnight stays. Consequently, the value added in real terms declined further by 3.3% (the decrease recorded in 2002 was 6.4%). Of the total value added, 38.5% corresponds to hotels, 11.8% to hotel apartments, 22.1% to restaurants and taverns, 6,9% to cafeterias and coffee shops, 5.8% to night clubs and cabarets, 4.3% to fast-food outlets and take-away restaurants and 10.6% to other eating and drinking places. Employment in restaurants and hotels decreased by 0.5% in 2003 compared to the previous year and reached 32,234 persons, accounting for 9.5% of the total economically active population and 10.2% of the total gainfully employed population.

Civil aircraft landings increased during 2000 and totalled 26,540 compared to 24,860 in 1999. Passenger arrivals through airports increased to 3,066,077 in 2000 compared to 2,776,360 in 1999. Civil aircraft landings increased during 2003 and totalled 29,177, compared to 28,810 in 2002. Passenger arrivals through airports decreased to 3,041,409 in 2003, compared to 3,105,818 in 2002.