articles | 07 May 2015

Cyprus economy to see growth in 2016

According to the European Commission’s Spring 2015 economic forecast, growth momentum is not expected to resume until 2016, when household and corporate deleveraging enable sustainable growth.

Cyprus’ gross domestic product growth projections for 2015 have been revised downwards by almost a full percentage point, from a positive 0.4% to a negative 0.5%, according to the European Commission’s Spring 2015 economic forecast, released on Tuesday.

The revision compares unfavourably with a projected EU-wide 1.8% GDP growth average – 1.5% for the Euro area – and reflects negative contributions from domestic demand for oil and net exports, though plateauing unemployment signals “further adjustment of the labour force”.

Exports, which recorded a 5.7% spike in 2014 following a sharp 5.0% drop the year before, are projected to drop moderately by 0.3% this year, before picking up again by 1.5% in 2016.

Imports, on the other hand, followed a similar pattern, with a 13.6% drop in 2013 followed by an 8.1% recovery, while 2015 will see a 0.2% drop before picking up again in 2016 – by 1.0%.

The growth momentum, the report said, is not expected to resume until 2016, when household and corporate deleveraging enable sustainable growth, while insolvency and foreclosure rules should have helped address the burning issue of non-performing loans, allowing the banking sector much-needed breathing space and the gradual restoration of credit supply. However, risks to the recovery remain, including a failure to keep NPLs in check and ripples from Russia.

“A failure to address high NPL ratios could lead to a more prolonged period of tight credit supply conditions, stalling the recovery of investment and weakening domestic demand,” the report warned.

“On the external side, the recession in Russia could have larger negative effects on exports than anticipated.”

Meanwhile, drastically consolidated government spending and improved tax collection seem to paint a brighter picture for 2015, but one-off revenues – such as high dividends from the Central Bank of Cyprus – will not be included in this year’s primary balance.

“This reflects the prolonged economic recession, impacting mostly on tax revenues, but also other factors,” the forecast said. “In 2016, the general government balance is forecast to improve in line with better economic conditions.”

Source: Cyprus Mail

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