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The tough years of the Mou

27/11/2012 08:49
The Cypriot economy is getting ready for the biggest shock since 1975 without prospects of recovery before 2015.

The era of the memorandum holds the largest shrinkage of the past decades since the developmental mounds of the past are lost and the economy goes into a long recession.

The combination of painful measures and lack of liquidity in the banks is expected to extend the GDP decline in 2013 to 3.5% against 2.4% expected this year.

The first time our economy shrunk since the Turkish invasion was in 2009, when GDP fell by 1.9%. Economy shrunk three years ago despite the increase in development costs and the relatively high credit growth of banks.

In 2013, development costs are expected to fall by €200 million or 20%, while new bank credit will be minimized due to the capital and liquidity challenges that banks will continue facing until their recapitalization.

The Ministry estimates that recession will continue in 2014, although it will be moderated to 1.3%. In the second half of the year, economy is expected to start recovering, and returning to positive - albeit weak - growth in 2015.

“The years 2013-2014 will be exceptionally difficult due to the unfavourable external environment, the inevitable correction in the construction and banking sectors, the fiscal correction but also the negative economic climate in general," the Ministry says.

Tourism and services are expected to contribute positively to growth prospects, but without reversing the overall picture.

The new data from the loan agreement for Cyprus cause rollover in an economy that grew at an average annual rate of 5.1% from 1978 to 2008.

Consumption will be affected the most due to salary cuts and an increase in unemployment, which is expected to exceed 12% over the next three years compared with 4% before the crisis.