Return to growth in 2015 is gaining ground
Hellenic Bank’s Economic Review: First Quarter 2015
 The Cypriot economy returned to positive growth in the 1st quarter of 2015
 Important downside risks to the growth outlook still exist
 Continued fiscal consolidation and implementation of the institutional and structural reforms
are necessary
T

he banking sector has gradually stabilized
Hellenic Bank assesses that the economy in 2015 could return to positive growth, pointing out,
however, that this is expected to take place progressively, as the economic environment still faces
several challenges.However, the prospects for recovery are expected to improve to a satisfactory
level if the provisions of the Memorandum for Cyprus are adhered to.
Indicative is what followed the approval of the insolvency framework and the law on foreclosures
by the parliament, the adoption of which was part of the Memorandum of Understanding. In the
Economic Review, the Economic Research Department, notes that the passage of the foreclosures
legislation and insolvency framework initiated the restart of the evaluation of the Cypriot economic
adjustment programme (5th Review). As a result, the yields of Cyprus government bonds have
fallen, paving the way for a return to the international markets with favorable interest rates.
Additionally, the Department notes that the programme and review is now expected to get back on
track, hence, Cyprus’ government bonds would become eligible to participate in the European
Central Bank’s quantitative easing program. As underlined, the better than expected economic
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performance along with the progress in the restructuring of the banking sector, allowed the Cypriot
authorities to fully remove all restrictions on capital movements.
In the Economic Review, the Economic Research Department emphasizes thatthe delayed
implementation of the structural reforms under the Memorandum of Understanding, the economic
uncertainty in Greece and the negative outlook of the Russian economy may jeopardise the
Cypriot economy’s efforts to end the recession within 2015. With regard to exogenous challenges,
it is emphasized that theincreased geopolitical tensions in the Middle East and Eastern
Mediterranean could trigger adverse spillovers to economic confidence, tourism and consequently
to the aggregate economic activity.
As highlighted, Cyprus has already made significant progress in the implementation of the policies
laid down in the program, particularly when it comes down to fiscal consolidation and stabilization
of the financial system.The Economic Review also notes that the better-than-expected fiscal
figures should not be regarded as a permission to relax the efforts for the public sector’s
reformation. One must continue and increase the efforts for the rationalisation of the public sector
without delay, in order to ensure the sustainability of the public debt, thus helping regain the
competitiveness of the Cypriot economy.
According to the economic review, the most important challenge for the banking sector going
forward is to reduce the high level of non-performing loans, which will be key in restoring bank
intermediation functions.
The Economics Research Department also notes that, the institutional and structural reformswill
contribute to regaining competitiveness and sustainable growth. Important reforms provided in the
Memorandum that should be implemented in 2015, relate to privatizations of semi-governmental
organizations and reforms within the public administration, Local Government and the health
sector.The implementation of the institutional reforms is an important pillar for improving the
business environment in order to promote investments.
In the Economic Review for the first quarter 2015, the Economics Research Department expresses
the view that the structural reforms to improve public finances and strengthen the institutions are
the only way to economic recovery and to the gradual restoration of trust in every sector. As
explained, the recent positive developments should not lead to a relaxation of the efforts for
economic reform. The Department affirms that success in the implementation of structural reforms
requires patience and persistence. Finally, it is highlighted that more and longer efforts are needed
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to end the recession so as to put the economy back on track to competitive and sustainable
growth.
Nicosia, 9 June 2015
Economic Forecasts – Cypriot Economy
Macroeconomic
Indicators
2013
2014
2015
GDP growth
-5,4%
-2,3%
-0,5% to 0,5%
Unemployment
16%
16,1%
16%
Inflation
0,4%
-0,3%
-0,5%
(Harmopnised)
Economics Research Department – Hellenic Bank Public Company Ltd
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