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Roundup: EC says Cypriot economy to return to growth

Xinhua, February 6, 2015 Adjust font size:

Cypriot recession has bottomed off and the economy is expected to return to growth this year, albeit at a marginal rate, a European Commission report said on Thursday.

The Commission said in its winter economic forecast made available in Nicosia that the economy of the bailed out eastern Mediterranean island is showing signs of stabilization.

But it warned of difficulties ahead due to the economic situation in Russia.

"On the external side, negative economic developments in Russia are likely to weigh on export growth in 2015, given the sizable trade links between Russia and Cyprus. This negative effect is likely to dominate the positive impact from lower oil price, leading to downside risk to the GDP growth projections for 2015," the report said.

Authorities estimate that due to the sharp devaluation of the ruble and Russia's lower income because of the decline in oil prices Cyprus stands to lose 25 percent of Russian tourists this year relative to 2014.

Preliminary statistics showed that about 800,000 tourists from Russia visited Cyprus last year, helping the island to contain its 2014 recession to 2.8 percent, much lower than initial projections by international lenders.

Cyprus was pulled back from bankruptcy in March, 2103, with a 10-billion-euro (11.4 billion U.S. dollars) deal offered by the Eurogroup and the International Monetary Fund.

The EC said in its report that improvement in economic sentiment has come to a halt after a sharp improvement before the setbacks of the Russian economy set in.

It said that while consumer confidence continued to improve, business sentiment in most sectors weakened with the exception of service-sector confidence which improved somewhat.

Growth is forecast to resume only gradually in 2015 and 2016, as private domestic demand slowly picks up, supported by lower energy prices.

The report said that Cyprus' economy is expected to grow by 0.4 percent this year and further by 0.9 percent in 2016.

It also said that unemployment will go down from a 16.2 percent ratio last year to 15.8 percent in 2015 and drop further to 14.8 percent next year as investments are expected to pick up.

The EC report warned that the forecast figures for Cyprus will be updated after the completion of the sixth review on Cyprus' economic adjustment currently under way.

Technocrats of Cyprus' creditors concluded a week-long review of the economy on Thursday but they are not expected to issue a report until after the government finds a way out of a dispute with opposition parties over foreclosures on bad bank debts.

The opposition, which commands a majority in parliament, twice suspended legislation regulating the repossession of properties in a move to pressure the government to provide guarantees that small debtors will not lose their primary residence.

Delays in completing the sixth review of the Cypriot economy have already cost Cyprus 86 million euros in a delayed IMF loan trance and the loss of tens of million of euros of fresh money because of the island's exclusion from a European Central Bank program for the purchase of sovereign debt. Endit