Growth of 1.6% after 14Qs recession

After three and a half years of recession or 14 quarters of negative growth, the Cyprus economy expanded in the first quarter of 2015, with GDP growing 1.6% from the previous quarter, the fastest in the Eurozone according to Eurostat, defeating European Commission predictions for continued contraction, albeit mildly, this year.

This follows last week’s resumption of inspections for the 10 bln euro bailout programme by technocrats from the Troika of international lenders (ECB, EC, IMF) after a six month suspension, which Finance Minister Harris Georgiades sounded confident would be concluded with a favourable review.

Cyprus recorded a “positive growth rate after 14 quarters of contraction. Reform and consolidation efforts are paying off,” Georgiades said in a statement.

But to exit recession, Cyprus needs to record three consecutive quarters of growth, job creation and increased demand, a period enjoyed briefly from the first quarter of 2010 to the second quarter of 2011. After that it sank back into recession on a runaway public sector deficit and piling national debt, a banking sector on the verge of collapse due to exposure to toxic Greek government bonds, a deadly power station blast that sent aftershocks throughout the economy and rising unemployment.

Privatisation Commissioner Constantinos Petrides expressed reserved optimism about the latest data, saying that “for the first time since 2011 we have a positive growth rate, albeit marginal. The crisis is not over and the risks remain. But we are taking steady steps.”

The Finance Ministry said in a statement that the recovery is still at its early stages and thus remains fragile.

“For that reason it is imperative that the common efforts for reforms and development continue, far from premature celebrations, but with a negativity, driven by a confidence that we can make it,” Georgiades said.

In its May 5 Spring forecast, the European Commission had said that the island’s economy would contract by 0.5% this year before returning to a growth of 1.4% in 2016.

The quarter on quarter growth rate of 1.6% of GDP, as seen by the Eurostat flash estimate for Q1 2015, followed q-o-q contractions of -0.2%, -0.8% and -0.4%, while the average growth rates for both the Eurozone and the whole of the European Union were 0.4% after continued fractional expansion in the last three quarters.

Eurostat said that seasonally adjusted GDP rose by 0.4% in both the euro area (EA19) and the EU28 during the first quarter of 2015, compared with the previous quarter.

In the fourth quarter of 2014, GDP grew by 0.3% in the euro area and by 0.4% in the EU28. Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 1.0% in the euro area and by 1.4% in the EU28 in the first quarter of 2015, after +0.9% and +1.3%, respectively, in the previous quarter.

During the first quarter of 2015, GDP in the United States increased by 0.1% compared with the previous quarter (after +0.5% in the fourth quarter of 2014). Compared with the same quarter of the previous year, GDP grew by 3.0% (after +2.4% in the previous quarter).