IMF: Smaller re­ces­sion in 2014 MOF: Re­ces­sion not ex­ceed­ing 3%

Financial Mirror (Cyprus) - - FRONT PAGE -

The re­ces­sion in 2014 will be smaller than ini­tially es­ti­mated by the In­ter­na­tional Mon­e­tary Fund after the con­clu­sion of the fourth re­view of the eco­nomic adjustment pro­gramme, ac­cord­ing to data in­cluded in the IMF’s lat­est World Eco­nomic Out­look (WEO).

The IMF said that Cyprus GDP will con­tract this year by 3.2%, while in the re­vised Mem­o­ran­dum of Agree­ment the Fund pro­jected a 4.2% con­trac­tion.

How­ever, the IMF main­tained its fore­cast for a 0.4% growth in 2015.

Mean­while, the Min­istry of Fi­nance sees re­ces­sion slow­ing down to -3%, com­pared to -3.5/4% in Au­gust, with the an­nual con­trac­tion seen at -4.2% this year.

The IMF’s WEO re­port pre­dicts that the rate of un­em­ploy­ment will stand this year at 16.6% and 16.1% in 2015, from 18.6% and 18.0%, re­spec­tively, fore­cast in the Mem­o­ran­dum.

Ac­cord­ing to the WEO, in 2014 and 2015 Cyprus will sink into de­fla­tion as the Con­sumer Price In­dex will record neg­a­tive rates of 1.1% and 0.8%, re­spec­tively.

The IMF has re­duced its es­ti­mates for the cur­rent ac­count deficit for both 2014 and 2015, com­pared with the pre­vi­ous es­ti­mate. The Fund ex­pects that in 2014 the deficit in the cur­rent ac­count will fall to 1.1% of GDP, from 1.9% in 2013. For 2015, the IMF pre­dicts fur­ther re­duc­tion of the deficit to 0.8%. Fol­low­ing the fourth as­sess­ment, the IMF ex­pected for this year a small cur­rent ac­count deficit of 0.1% and for 2015 a sur­plus of 0.2%.

The Fund said that “in the euro area a grad­ual, but weak re­cov­ery is pro­jected to take hold, sup­ported by a sharp com­pres­sion in in­ter­est spreads for stressed economies and record-low long-term in­ter­est rates in core euro area economies”.

It noted that “growth is still weak in the euro area, with lin­ger­ing risks of more pro­tracted low growth and low in­fla­tion”, adding that the euro area “stag­nated in the sec­ond quar­ter of 2014, with in­vest­ments sur­pris­ing on the down­side in sev­eral large economies”.

“The out­look is for a mod­est re­cov­ery and sub­dued re­cov­ery” the IMF said, not­ing that growth -pred­i­cated on con­tin­ued im­prove­ments in lend­ing con­di­tions and re­silient ex­ter­nal de­mand- is ex­pected to av­er­age about 0.8% in 2014 and 1.3% in 2015.

In­fla­tion will av­er­age about 0.5% in 2014 and 0.9% in 2015. The un­em­ploy­ment rate is pro­jected to stand at 11.6% this year and drop to 11.2% in the next year.

EU’s GDP is ex­pected to grow 1.5% in 2014 and 1.9% in the next year.

The Min­istry of Fi­nance sees fur­ther slow­down of re­ces­sion to -3%, in its Oc­to­ber fore­cast, com­pared to -3.5/4% in Au­gust, while the fourth an­nual re­view of the adjustment pro­gramme in­cludes the as­sump­tion that the an­nual con­trac­tion of the econ­omy will be -4.2% this year.

“We main­tain our view that growth will re­main neg­a­tive, not ex­ceed­ing 3%, and we as­sume a re­bound in 2015 with a grad­ual restora­tion of lend­ing at af­ford­able rates”, ac­cord­ing to the Oc­to­ber Pub­lic Debt Man­age­ment news­let­ter.

In the sec­ond quar­ter of 2014, GDP (in sea­son­ally ad­justed terms) con­tracted by -2.5% com­pared with -3.9% in the first quar­ter on an an­nual ba­sis.

Ex­ports of goods de­creased by 6.2% in Jan­uary-July com­pared to the cor­re­spond­ing pe­riod in 2013. In Jan­uaryAu­gust, tourist ar­rivals in­creased by 5.9% com­pared to the cor­re­spond­ing pe­riod in 2013. In­fla­tion stood at 0.8% in Au­gust com­pared to 0.9% in July and for 2014 so far it stands at -0.3%.

Un­em­ploy­ment, in monthly sea­son­ally ad­justed fig­ures, de­creased from 16.1% in July 2013 to 14.9% in July 2014 (15% in June). The most af­fected seg­ment of the pop­u­la­tion is youth. Par­tic­u­larly wor­ry­ing is the rapid in­crease in long-term un­em­ployed, the PDM news­let­ter said.

Com­pen­sa­tion per em­ployee in the first half of 2014 de­clined by around 5.1% com­pared to the first half of 2013, con­tribut­ing to a de­cline of nom­i­nal unit labour costs and im­prov­ing cost com­pet­i­tive­ness fur­ther.

The up­com­ing bank­ing stress tests this month and the res­o­lu­tion of the is­sue of the fore­clo­sure leg­is­la­tion will be the ma­jor driv­ers for the bond mar­ket yields in the com­ing months. Ex­ter­nal fac­tors (the Ukrainian and Mid­dle East crises) are ex­pected to have an ef­fect too.

The au­thor­i­ties in­tend to adapt the road-map in ex­am­in­ing the ex­ter­nal re­stric­tive mea­sures, aim­ing to­wards their grad­ual re­lax­ation and even­tual abo­li­tion, while en­sur­ing con­sis­tency with fi­nan­cial sta­bil­ity.

Ac­cord­ing to the Fi­nance Min­istry, de­vel­op­ments in pub­lic fi­nances con­tinue to ex­ceed ex­pec­ta­tions.

The gen­eral gov­ern­ment bud­get bal­ance

(GGBB) was in sur­plus dur­ing the first eight months of 2014, to the or­der of EUR 126 mln (0.8% of GDP), com­pared to a deficit of EUR 263 mln (-1.7% of GDP) dur­ing the same pe­riod last year.

The gen­eral gov­ern­ment pri­mary bal­ance (GGPB) was in sur­plus dur­ing the first eight months to the or­der of EUR 457 mln (2.9% of GDP), com­pared to a sur­plus of EUR 135 mln (0.8% of GDP) in the same pe­riod last year.

To­tal rev­enue ex­hib­ited a pos­i­tive rate of growth of about 6.7%, reach­ing EUR 4,449 mln dur­ing the first eight months, com­pared to EUR 4,170 mln dur­ing the same pe­riod of the year be­fore.

To­tal ex­pen­di­ture ex­hib­ited a neg­a­tive rate of growth of about 2.5%, reach­ing EUR 4,323 mln dur­ing the first eight months, com­pared to EUR 4,433 mln dur­ing the same pe­riod last year.

In ac­cor­dance with the macroe­co­nomic sce­nario agreed dur­ing the fifth re­view, the bud­get bal­ance is es­ti­mated to ex­hibit an im­prove­ment with the deficit fall­ing to 4.7% of GDP in 2014 com­pared to a deficit of 5.4% the year be­fore.

The Gen­eral Gov­ern­ment Debt at the end of Septem­ber (pre­lim­i­nary data) stood at EUR 18.4 bln. This in­di­ca­tor has not changed since De­cem­ber 2013, the PDM news­let­ter said.

Short term yields have con­tin­ued to drop with three month pri­mary mar­ket yields drop­ping to 3.9% in Au­gust (no new is­suances took place in Septem­ber). Long term bond yields ex­hib­ited a sig­nif­i­cant drop in Au­gust and early Septem­ber as the ef­fects of the ECB’s mon­e­tary de­ci­sions were taken in by the mar­kets but have risen again fol­low­ing the gen­eral trend in the Euro­pean pe­riph­ery. Yields re­main be­low the 5% mark.

The 6th Pro­gramme tranche of EUR 433 mln was not dis­bursed in Septem­ber due to non-com­pli­ance in in­tro­duc­ing leg­is­la­tion on fore­clo­sure as de­manded by the Troika of adjustment pro­gramme part­ners.

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.