EC sees Cyprus in “deep recession”, GDP to shrink 8.7%

Cyprus will enter deep recession and face a rise in unemployment, deficit and debt ratios, following a bailout agreement with the Troika of international lenders (European Commission, ECB, IMF) and accompanying austerity measures, the European Commission’s spring forecast said Friday.
According to the report, the Cyprus economy will enter a recession, with its GDP shrinking by 8.7% in 2013 and by 3.9% in 2014.
The Commission report said the country’s deficit reached 6.3% of GDP in 2013 while it is projected to go up to 6.5% this year and 8.4% in 2014.
Cyprus’ public debt stood at 85.5% of GDP in 2012, while this is expected to climb to 109.5% in 2013 and to 124% in 2014.
The economy in recession is further expected to lead to increased unemployment, from 11.9% in 2012 to 15.5% in 2013 and to 16.9% in 2014. The rise is a result of shrinking employment rates, which contracted by 6.6% this year and is estimated to continue shrinking by 3.1% in 2014.
Eurogroup reached an agreement with Cypriot authorities on March 25 on the key elements necessary for a future macroeconomic adjustment programme of 10 bln euros, plus a further 6 bln euros raised from a “bail in” of unsecured deposits in order to recapitalise the troubled banks.
Excluded from international markets, Cyprus applied in June 2012 for financial assistance, after its two largest banks – Bank of Cyprus and Popular Laiki Bank – sought state aid, following massive write downs of their Greek bond holdings amounting to 4.5 bln euros or 25% of the island`s GDP, as a result of the Greek sovereign debt haircut.
Part of the bailout agreement also saw the resolution of Popular Laiki, with its 9 bln euros credit facility from the European Liquidity Assistance (ELA) programme inherited by Bank of Cyprus. The two banks have since been merged with a restructuring programme underway.