Con­trac­tion may be milder says cen­tral bank, con­firms Sapi­enta

Financial Mirror (Cyprus) - - FRONT PAGE -

The econ­omy may con­tract in a more milder pace than an­tic­i­pated, ac­cord­ing to Cen­tral Bank of Cyprus es­ti­mates, with the Troika of in­ter­na­tional lenders pro­ject­ing a neg­a­tive growth of 4.2% of GDP this year, as against an ini­tial es­ti­mate of -4.8%.

Ac­cord­ing to a flash es­ti­mate by the Sta­tis­ti­cal Ser­vice, the econ­omy in the first quar­ter of 2014 con­tracted by 4%.

This con­firms projections by Sapi­enta Eco­nom­ics last week that the Cyprus econ­omy, one year af­ter its painful 10 bln euro bailout fea­tur­ing a hair­cut on unin­sured de­posits and strin­gent cap­i­tal re­stric­tions, will shrink by a less-than-ex­pected 3.1% in 2014.

As a re­sult of last year’s fi­nan­cial as­sis­tance pro­gramme im­posed by the EU, the ECB and IMF, the econ­omy con­tracted by 5.4% of GDP in 2013, which was way less than 8.7% ini­tially pro­jected by Cyprus’ lenders.

For 2015, the Troika projections are re­vised down­wards for growth of 0.4% of GDP from the ini­tial 0.9%. The Cypriot pro­gramme is re­viewed on a quar­terly ba­sis with new projections is­sued af­ter each re­view.

“The rel­a­tively im­proved pic­ture pro­jected by re­cent eco­nomic in­di­ca­tors con­cern­ing do­mes­tic de­mand in the first months of 2014 con­sti­tutes a fac­tor which may sug­gest an even milder GDP con­trac­tion,” the cen­tral bank said.

The CBC de­scribed the im­ple­men­ta­tion of the pro­gramme as very sat­is­fac­tory, not­ing how­ever that there is no room for com­pla­cency.

It also noted that the “progress in the bank­ing sys­tem in 2013 and in early 2014 is sig­nif­i­cant and has be­gun to bear fruit.”

The Bank of Cyprus has been re­cap­i­talised with cap­i­tal gen­er­ated from the hair­cut, while the Hel­lenic Bank achieved its re­cap­i­tal­i­sa­tion with pri­vate sec­tor money.

“As a re­sult of the re­cap­i­tal­i­sa­tions, the bank­ing sec­tor has sig­nif­i­cant cap­i­tal which may be used to ab­sorb pos­si­ble fur­ther shocks,” the CBC added.

The CBC noted how­ever that “restor­ing con­fi­dence in the bank­ing sys­tem de­mands con­stant ef­forts with se­ri­ous tech­no­cratic han­dling,” adding that en­sur­ing sat­is­fac­tory liq­uid­ity to the econ­omy, the man­age­ment of non­per­form­ing loans and strength­en­ing cor­po­rate gov­er­nance in the banks are is­sues of pri­or­ity as well as the nec­es­sary pre­con­di­tions for restor­ing the bank­ing sec­tor’s cred­i­bil­ity.

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