The Finance Ministry forecast a 0.4% growth for 2015 in October while two months later the Central Bank of Cyprus said the economy will expand this year twice as fast.

“The decline in output for the last quarter of 2014 and for 2015 is estimated to be less severe than that registered in the first three quarters of 2014,” the University’s economics research centre said in its economic outlook today.

The stabilisation of the economy resulted from a slowdown of the contraction of domestic activity and employment combined with falling energy prices, a strengthening of domestic confidence and an improved performance of the Cyprus Stock Exchange last year as well as the stabilisation in the banking system, the university said.

“External factors, such as the expansion of real activity in the euro area and the United Kingdom during the third quarter, and the weakening of the euro against the British pound, which is expected to influence positively domestic activity through tourism,” may have too contributed to the amelioration of the recession, the University of Cyprus said.

The university said uncertainty related to the economic recovery of the euro area, the slowdown of the Russian economy and the weak rouble, as well as political and economic uncertainty in Greece are delaying Cyprus’s economic recovery. “Domestic factors which impact negatively on the activity outlook include the elevated unemployment rate, the relatively high lending interest rates reflecting tight domestic credit conditions, the historically low levels of fixed investment, and the high levels of public debt,” it said.

The rising non-performing loans ratio in the Cypriot banking system together with delays in the implementation of the related legislation that could lead to a further tightening of credit conditions, delays in structural reform programme combined with a weaker commitment to the adjustment programme agreed with creditors, as well as a further slowdown of the Russian economy and a deterioration of the European economy and further uncertainty in Greece may further threaten Cyprus’s recovery process, the University of Cyprus said.

The university said that the European Central Bank’s expanded asset purchasing programme also known as quantitative easing may at least via increased demand in the euro area have a positive impact on domestic economic activity, the university said. In addition, robust growth in the United Kingdom, Cyprus’s largest source of incoming tourism, and the weak euro against the British pound, as well as investment in the local tourism sector “may improve the medium-term prospects of the economy,” the university said.

Source: Cyprus Mail