Economy to contract 4%, says FinMin

Contraction in the economy will be at 4% of GDP this year, according to the Finance Ministry macroeconomic indicators for May.

This is an improvement over the 4.2% revised prediction by the Troika of international lenders after their fourth review of the Cyprus bailout adjustment programme, while President Nicos Anastasiades declared on Monday that Cyprus will be back on a growth path in 2015.

For 2015, the ministry estimates the economy will return to growth with a marginal rate of 0.5%, a hairline above the 0.4% predicted by the Troika, while for 2016 the prediction for growth is slightly lower at 1.5% of GDP, compared to the Troika’s more optimistic 1.6%.

According to the ministry report, the accumulated contraction for 2013 and 2014 is estimated at 9.6% of GDP.

The delay in the stabilisation of the banking sector, with a negative impact this has on lending and interest rates, as well as the negative developments in the region and the ongoing conflict in Ukraine resulting in the deoffshorisation of Russian companies, are seen as the main challenges facing economy, the ministry said.

On a positive note, the ministry said that the fiscal targets will be exceeded in 2014, despite the difficulties faced by the weak rate of growth and the difficulty to adapt to the targets of Troika memorandum.

As regards deflation, the ministry said that the present trend in prices is being affected by the labour market, wages, fuel prices, food and taxation.

According to the Statistics Service Cystat, deflation in June was contained at 0%,

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Cyprus compared to -0.1% in May, while the Troika believes the current year will close with an inflation target of 0.2%.