European Commission says Cyprus returning to sound economy

Cyprus is returning to sound economy as it is getting ready to exit a three-year economic adjustment program, the European Commission (EC) said on Thursday.

Cyprus was offered a 10-billion-euro(11.19 billion U.S. dollars) bail-out by the Eurogroup and the International Monetary Fund in March, 2013, after it was shut out of international markets since mid-2011.

EC said in its winter economic forecasts released by Commissioner Pierre Moscovici that Cyprus is projected to achieve a growth rate of 1.4 percent at the end of 2015.

The eastern Mediterranean island returned to positive development since the first quarter of last year after being in the red for 11 consecutive quarters.

"Real GDP growth strengthened in the first three quarters of 2015 after spending three years in negative territory," EC's projection said.

It added that growth was driven by both domestic and external demand, economic sentiment and tourist arrivals.

Cypriot officials say that they expect actual growth for 2015 to top 2.0 percent.

EC estimated that the economy will grow this year by 1.5 percent and will reach 2.0 percent in 2017 as a result of increasing demand and a low inflation.

But EC said that "export growth was not sufficiently strong to counterbalance the growth of imports, which rose on the back of stronger domestic demand the higher number of ship registration."

It said that an end result of the projected growth will be a considerable drop in the current unemployment rate of 15.5 percent to 14.5 percent this year and to 13.2 percent in 2017.

The sovereign debt is also expected to drop dramatically from its 2015 peak of 108.4 percent of GDP to 99.9 percent this year and to 95 percent of GDP in 2017.

The Commission said that the upside trends are balanced by downside risks.

"On the upside, the renewed weakness in energy prices and the effects of the past euro's depreciation could support consumption and exports more than expected", the EC report said.

On the downside it calculates that "the weakening of external demand and the sanctions against Russia could weigh more on activity than forecast."

It also warned that in the financial sector, the slow pace of reduction in the high level of non-performing loans could lead to a more prolonged period of tight credit conditions, which would dampen the recovery.