ERC says recession to continue in 2015

Recession in Cyprus is projected to continue next year as well, the Economics Research Centre of the University of Cyprus said in its July Economic Outlook, forecasting a contraction in GDP of 0.7% in 2015, unlike a weak growth of 0.4% projected in the adjustment programme.

For the current year, the ERC forecasts a moderate recession compared to 2013.

ERC says its projections indicate a milder recession for 2014 compared to the contraction of real GDP by 4.2% forecast in the economic adjustment programme. For 2015, the projections indicate that activity will continue to decline, albeit at a slower pace than this year.

According to the ERC, real GDP growth for 2014 is projected at -2.7%, with the same rate of contraction recorded in the second quarter, while in the third and fourth quarters real activity is forecast to decline by 2.3% and 1.6%, respectively.

The Centre estimates that recession will persist in 2015 but the contraction of real GDP is estimated to decelerate further at -0.7%. Real output is projected to fall by 1.1% in the first quarter of 2015 and by 0.8% in the second and third quarter; in the final quarter of 2015 real GDP is forecast to remain flat.

“Although the error pertaining to the projections for 2015 presented here is relatively large, the evidence for a more protracted activity contraction is consistent with some of the attributes of this recession, such as high private and public sector indebtedness levels, adverse credit conditions and deleveraging, weighing further on domestic demand, most notably investment,” the ERC said.

“The decline in output for 2014 is estimated to be less severe than in previous quarters, as the recession in Cyprus eased further during the first quarter of the year and economic conditions in the EU continued to improve,” it noted.

“Domestic leading indicators associated with real activity and the labour market have also been picking up, adding to the less negative economic outlook.” it added.