In the third quarter of 2014 real GDP is estimated to contract by 1.9% compared to the same period of 2013, and in the fourth quarter real activity is forecast to decline by 1.4%.

The recession is forecast to persist in 2015 but the contraction of real GDP is estimated to decelerate considerably, at -0.4%.

Real output is projected to fall, compared to the corresponding period of 2013 by 1.0% in the first quarter of 2015 and by 0.2% in the remaining quarters.

Forecasts for the growth rate of real GDP for 2014 and 2015 are less negative compared to the previous study.

The revisions are driven by the slowdown of real GDP contraction in Cyprus in the second quarter, the positive growth rate in the euro area for a third consecutive quarter and robust growth in the United Kingdom.

According to the ERC, domestic leading indicators associated with real activity and the labour market continued to improve in the second and third quarter, adding to the less negative forecasts compared to the previous issue.

Other economic developments that contributed to the upward revisions include the levels of economic confidence around the long-run average in Cyprus and the EU, the favourable performance of stock markets, further reductions in the spreads of the stressed economies of the euro area, and the strengthening of the stabilisation process in the banking system.

The downside risks accompanying the projections include the rising level of non-performing loans together with delays in the reform of the relevant legal framework, the delays in the advancement of agreed structural reforms, further slowdown of the Russian economy in combination with the enforcement of sanctions by the EU, the increased geopolitical tensions in the Middle East and Eastern Mediterranean.

The projections indicate a milder recession for 2014 compared to the contraction of real GDP by 3.2% forecast recently by the IMF. For 2015 the projections given suggest that activity will continue to decline, albeit at a slower rate than in 2014, while weak growth at 0.4% is forecast by the IMF.

Source: InCyprus