The European Commission’s Spring forecast expects South Cyprus to enter deep recession and face a rise in unemployment, deficit and debt ratios, following a bailout agreement with the Troika (European Commission, ECB, IMF). Its GDP will shrink by 8.7% in 2013 and by 3.9% in 2014.
The Commission report says the country’s deficit reached 6.3% of GDP in 2013 while it is projected to go up to 6.5% this year and 8.4% in 2014.
South Cyprus’ public debt stood at 85.5% of GDP in 2012, while this is expected to climb to 109.5% in 2013 and to 124% in 2014.
The economy in recession is further expected to lead to increased unemployment, from 11.9% in 2012 to 15.5% in 2013 and to 16.9% in 2014. The rise is a result of shrinking employment rates, which contracted by 6.6% this year and is estimated to continue shrinking by 3.1% in 2014.
Eurogroup reached an agreement with Greek Cypriot authorities on March 25th on the key elements necessary for a future macroeconomic adjustment programme of 10 billion euros.
Excluded from international markets, South Cyprus applied in June 2012 for financial assistance, after its two largest banks sought state aid, following massive write downs of their Greek bond holdings amounting to 4.5 billion euro or 25% of the island`s GDP, as a result of the Greek sovereign debt haircut.
The South Cyprus parliament voted in favour of the bailout and its terms four days ago by a very narrow majority – 2 votes. Failure to accept the bailout would have led to the South exiting the EU.