Average short term debt yields continued to drop in June and July with short term rates falling at 4.22% at the end of July from 4.48% at the end of Q1 2014.

Long-term bond yields displayed relative stability during June and July, hovering around the 5.0% mark despite negative international developments.

According to the report, developments in public finances continue to exceed expectations.

General government budget balance was in deficit during the first half of 2014, of the order of €22 million (-0.1% of GDP) compared with a forecast deficit of -€145 million (-0.9% of GDP). General government primary balance was in surplus during the first half of 2014, of the order of €171 million (1.1% of GDP) compared to target a surplus of €46 million (0.3% of GDP).

Total revenue reached €3.2 billion during the first half of 2014, in line with the forecast. Total expenditure reached €3.2 billion during the first half of 2014, a €124 million fall compared with the forecast.

In accordance with the macroeconomic scenario agreed with international lenders, the budget balance is expected to show an improvement with the deficit falling to 4.7% of GDP in 2014 compared with a deficit of 5.4% the year before.

In the macroeconomic environment, in Q1 2014, GDP (in seasonally adjusted terms) contracted by -4.1% compared with -4.9% in Q4 2013.

The contraction was mainly due to the subdued performance of the secondary sector (construction, manufacturing) and the financial sector. From the expenditure side, the contraction was more pronounced in investments of construction, while net exports made a positive contribution.

The business operating environment remains constrained, given that lending to non-financial corporations is subdued and interest rates are still high.

Exports of goods decreased by 7.1% year-on-year between January and May.

Unemployment, in monthly seasonally adjusted figures, decreased from 15.9% in May 2013 to 15.3% in May 2014.

The most affected segment of the population is youth. Particularly worrying is also the rapid increase in long-term unemployed.

Compensation per employee in the 1st quarter of 2014 declined by around 4.5% compared with Q1 2013, contributing to a decline of nominal unit labour costs and improving cost competitiveness further. The wage adjustment is expected to help contain the upward pressure on unemployment, the report said.

Source: Cyprus Mail