Recession in Cyprus is forecast to moderate further during the second half of 2014. As a result real GDP growth for 2014 is projected at ₋2.4%, according to the Economic Research Centre (ERC) of the University of Cyprus.
A press release, issued on Friday by the ERC, says that 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.
The forecasts for the growth rate of real GDP for 2014 and 2015 presented in this press release are less negative compared to the projections in the previous issue. 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 in this press release 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
here 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.
