The European Commission publishes macroeconomic forecasts for the EU and the member states three times a year, in the spring (May), in the autumn (November) and in the winter (February). In its report, titled ‘Recession deepens while adjustments are underway’, the Commission said that amid high uncertainty, real GDP in 2013 and 2014 is expected to profoundly contract.

GDP(year-on-year) is forecast to contract by 8.7% this year and by 3.9% in 2014, while the economy will grow by a mere 1.1% in 2015. “In 2015, the recession is expected to come to an end and growth is foreseen to resume gradually, as private domestic demand regains strength. The ongoing deleveraging of both households and corporations will remove impediments to a more balanced growth over time,” the Commission noted.

“The Cypriot economy will continue to face several headwinds. Domestic demand will continue to fall, amid declining credit and wage growth alongside further fiscal consolidation. The profound contraction in economic activity in 2013 and 2014 is expected to weigh on employment and push unemployment to unprecedented levels.” The jobless rate in 2013 is anticipated to reach 16.7%, but 2014 will be the worst year by far with unemployment soaring to 19.2%, then falling slightly to 18.4% in 2015.

“Despite the significant consolidation effort undertaken in line with the programme requirements, the general government deficit is expected to increase in 2013,” the Commission said. “This is largely due to a one-off compensation of provident and retirement funds in Cyprus Popular Bank, which amounts to 1.8% of GDP.” The deficit is projected to stay flat in 2014 and to decline in 2015, in line with the annual targets set out in the context of the programme. Debt is expected to sharply increase in 2013, mainly as a result of the participation of the government in the recapitalisation of the banking sector. The debt-to-GDP ratio is projected to further increase in 2014 and 2015, reflecting the weak GDP growth. Gross Public Debt as a percentage of GDP is forecast to jump to 116% this year, 124.4% in 2014 and to 127.4% in 2015.

The Commission notes that its latest forecast on Cyprus was finalised at end-July, after the first review of the economic adjustment programme by the troika, “and will be revisited during the second quarterly review. The text reflects recent developments.”

Source: Cyprus Mail