Could the Cyprus Economic Recession be Nearing its End?
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During March of last year (2013), Cyprus agreed to an international bailout of approximately €17 billion from the European Central Bank, International Monetary Fund and European Commission. The size of this bailout was so significant that it actually amounted to 100% of GDP, and involved a bank bail in. A bank bail in is when the creditors of a borrower bear some of the burden by writing off some of their debt in order to make the level of debt more sustainable.
During March of last year (2013), Cyprus agreed to an international bailout of approximately €17 billion from the European Central Bank, International Monetary Fund and European Commission. The size of this bailout was so significant that it actually amounted to 100% of GDP, and involved a bank bail in. A bank bail in is when the creditors of a borrower bear some of the burden by writing off some of their debt in order to make the level of debt more sustainable.
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Not Horrendous News
This collection of severe economic measures were taken in an attempt to prevent the country from facing bankruptcy, and subsequently becoming the first nation in the European Union to be forced out of the European currency. Although the economic forecast in Cyprus is for the economy to shrink this year, it will see a contraction that is smaller than had previously been expected. As a result, the three-year recession seems to become towards its end according to Finance Minister, Harris Georgiades.
The Forecast for Cyprus
After presenting the budget for 2015 to the Cyprus Parliament, Georgiades announced that Gross Domestic Product is likely to decline less than 3% in 2014. This marks the fourth forecast revision showing a smaller contraction. If the trend continues to move in this manner, then the suggestion is that the recession might be finally ending.
A revival of business activity, tourist arrivals, and improved sales of real estate in comparison to the 2013 market have all had a hand in improving economic conditions. Cyprus is currently undergoing a three-year program of austerity mandated by the IMF and EU, which rescued the island with 10 billion euros in 2013. Many business leaders in the US believe America, California, New York State, and Chicago should engage in some serious financial austerity just as Cypress did.
In the last review, the EU forecast a 4.2% contraction for this year. However, as long as Cyprus continues to make the necessary reforms, and starts to regain international market confidence, the country could exit the bailout earlier than the expected in mid-2016.
Still Relying on Outside Help
After a four-year hiatus from the international market, Cyprus returned in the middle of 2014, overcoming a time in which yields on traded debt continued to soar. However, despite this positive move, the country still relies on IMF and EU funding to survive. According to the finance minister, if Cyprus maintains a favorable economic climate, the country could once again return to the markets.
Recently, the Central European Bank suggested that it will loosen its terms for accepting securities from Greek banks, allowing them to tap more of their funding, and this offer applies to Cyprus too, as the only other country in a rescue program at this time. Georgiades believes that Cyprus could grow again in 2015, with a conservative estimate of a 0.4% expansion.
