The Cyprus economy will remain in recession up to next year despite projections by the troika of international lenders that the economy will register a modest economic growth, according to the Hellenic Bank quarterly economic review.
Hellenic Bank estimates that the Cypriot economy will contract by 5.4% in 2014 compared with a contraction of 4.8% of GDP projected by the Troika of the European Commission, the European Central Bank and the IMF. For 2015, Hellenic Bank projects a 1.0% contraction as opposed to a modest growth of 0.9% of GDP projected by the Troika.
Public debt is projected to will rise from 114% of GDP in 2013 to 126% in 2015, an estimate that is broadly in line with Troika projections.
The Hellenic Bank notes that the reduced contraction in 2013 is mainly due to the positive growth rates registered in the field of tourism.
The bank noted that the lack of confidence in the banking sector, severely hit by the haircut imposed on deposits over 100,00 as part of the €10 bln bailout, “continues to undermine its role in the economic growth.”
Apart from the unprecedented haircut on banking deposits to recapalise the island’s two largest ailing banks, the bailout featured restrictions on capital movement which hampered economic activity.
“The prolonged lack of confidence in the financial system exacerbates further the current financial situation and leads the economy to a dead end,” the review notes.
The bank also noted that loan restructuring is a “significant pillar to the implementation of the restructuring of the banking sector.”
Debt restructuring is considered by Cyprus lenders as a significant element of the adjustment programme that would assist the banks to reduce their non-performing loans which reached €26 bln by January this year.
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