The Cypriot economy is small and prosperous but highly susceptible to external shocks. Industry contributes 22% to GDP and employs 25% of the labor force while the service sector contributes 89% to GDP and employs 62% of the labor force. Erratic growth rates in the 1990s reflect the economy's vulnerability to swings in tourist arrivals caused by political instability on the island and fluctuations in economic conditions in Western Europe.

As a full member of the European Union, Cyprus is successfully meeting the challenge of being part of the enlarged European family. The island’s economy is characterised by robustness and macroeconomic stability, which is evidenced by the favourable evaluations and comments of the European Commission, the International Monetary Fund and other international organisations. During the period 2000 – 2004 the Cyprus economy recorded real GDP growth of 3,4%, which compares favourably with the EU average. This was accomplished in an environment of full employment conditions, low inflation and a stable and strong currency.

In 2004 Cyprus’s per capita GDP reached about 81% of the EU-25 average. In addition, it should be pointed out that important structural reforms within the context of the Lisbon Strategy are in progress in order to further modernize and liberalize its market-oriented economy, with a view to enhancing its international competitiveness and EU compatibility. These structural reforms, together with macroeconomic stability, provide a strong foundation for the successful participation of the island in the euro area, hopefully by 2008.