What Does the Economic Future Hold for Cyprus?

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The International Monetary Fund — also known as the IMF — released a report on Cyprus this week, the second one so far. The report was both hopeful and critical, listing good results, but honest considerations for the extent of future difficulties. The IMF reports that the recovery program is proceeding well, and that fiscal recovery has been better than expected. While the release discusses meeting goals with “comfortable margins,” the IMF does note that leftist domestic groups are still critical of the recovery program, creating lessened financial confidence.

While the third-quarter had a 0.8 percent output decrease, making the annualized growth decline for the first three quarters totaling 5.5 percent, this was less then analyst expectations of a 8.7 percent growth decline. The IMF reports continued outflows and reduced credit from banks, and notes that the growth loss in the future will still be considerate.

“Long-run growth projections, which remain unchanged, point to a net output loss a decade after the crisis of about 4 percent, which is somewhat smaller than that projected for Greece, but larger than those for Ireland and for Portugal,” read the report, saying that the output loss is “substantially larger than estimates from other financial crises.”

The IMF notes that the Eurozone may be some help in the recovery process, but that it will be a long time in coming. Despite a fair amount of good news regarding the countries recovery program and stabilization measures, it says a reduction in growth should be expected for a solid chunk of time in the future.

“The modest recovery in the Eurozone is providing some upside to Cyprus through increased trade,” it read, as is a possible rebound in confidence for markets in the area, but said that, “Deleveraging is expected to pose a drag on growth over the next [five to ten] years.”

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