Greek Cyprus lenders expect shallower recession

NICOSIA - Reuters

Greek Cyprus’ Finance Minister Harris Georgiades says international creditors have given a fourth straight positive review to the country’s rescue program. AP Photo

International lenders anticipate a shallower recession in Greek Cyprus this year as private consumption continued to drive the economy, authorities said, holding out the possibility of an earlier than envisaged return to international markets.

Lenders concluded their fourth mission to the island and said an economic adjustment program was on track, Finance Minister Haris Georgiades told reporters.

“It was noted that progress was achieved in all sectors of the economy,” Georgiades said.
Lenders, known as the troika, had lowered their expectations on the depth of recession to 4.2 percent, from a February

projection of 4.8 percent, Georgiades and European Union officials said.

But future recovery was likely to be more subdued, given the high levels of unemployment, a liquidity crunch from high non- performing loans in the banking sector and indebtedness which could dampen consumption, the troika said in a joint statement.

Greek Cyprus’s economy contracted by 5.4 percent in 2013, more than 2 percentage points better than initial expectations. A return to growth of about 0.4 percent was anticipated in 2015, the IMF and the EU said.

“Consumption is holding up better than we expected,” a senior European Commission source said, adding it was also due to the carry-over effect from 2013.

The source said the possibility of Greek Cyprus returning to international markets earlier than its end-2015 game plan could not be discounted, given its performance so far.

Greek Cyprus teetered on the verge of financial collapse in March 2013 after its banking system imploded from risky lending, exacerbating a cash squeeze on a state which has been shut out of financial markets for three years.The island, one of the euro zone’s smallest, required a 10- billion-euro ($13.7 billion) bailout and is following a three-year economic adjustment program.The positive review means that Greek Cyprus will receive a new tranche of aid of about 686 million euros, mostly provided by the European Union, by the end of June.