articles | 15 December 2014

Central bank says economy to shrink 2.6% in 2014

The Central Bank of Cyprus said the Cypriot economy will contract this year 2.6% compared to 2013 mainly on a better than expected course of private consumption which is expected to fall by 1.7%.

In 2015, the economy is expected to increase 0.8% boosted by a forecast 1.3% increase in private consumption, compared to the finance ministry’s 0.4% economic growth forecast, and further accelerate to 2.1% in 2016, the central bank said in a statement on its website today.

Cyprus is expected to post a deflation rate of -0.1% this year, the central bank said before consumer prices rise 0.2% next year “boosted by the limited economic recovery which will be offset by falling energy prices,” it said adding that in 2016, inflation is expected to accelerate to 1.3%.

“A probable implementation of additional fiscal consolidation measures is likely to negatively affect forecast on the gross domestic product,” the statement said. “In this case, it is expected that public investment and public consumption will suffer while further negative impact is expected on domestic demand mainly on the negative effect on private consumption. “A further deterioration of the euro area economy may negatively affect tourism flows to Cyprus with serious effects on exports and economic activity in Cyprus”.

On the other hand, the economy may receive a boost from the European Investment Bank’s operations and the exploitation of natural gas, the central bank said. Efforts to attract tourism from new markets, the construction of the Limassol Marina and the plans to establish a casino in Cyprus, may too offer the economy a boost, which is also anticipated from the European Central Bank’s Targeted Longer-Term Refinancing Operations, known as TLTROs.

“Overall, upside risks to the prevailing GDP forecast are considered likelier,” the central bank said adding that in that case growth will be faster.

The euro area economy is expected to grow 0.8% this year, after it contracted 0.4% last year, before growth accelerates to 1% and 1.5% in 2015 and 2016, the central bank said citing the Eurosystem’s forecasts.

Inflation will be 0.5% this year before it reaches 0.7% in 2015 and 1.3% in 2016.

Source: Cyprus Mail

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