Cyprus’ Economy Shrinks 5.5%

Hammered by bank confiscations and austerity measures, Cyprus’ economy fell 5.5 percent in 2013, the finance ministry said – adding that it was good news because the expectations were more dire.

Even bad publicity about capital controls that limited people to 300 euros ($410) per day withdrawals and scenes of protests couldn’t keep tourists away and that eased the fiscal pain, along with more private consumption than expected.

President Nicos Anastasiades last March agreed to a 10 billion euro ($13 billion) rescue plan from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) but that came with conditions that the government find or raise in revenues another 13 billion euros ($17 billion).

Cyprus had figured the tough measures would lead to a drop of 7.7 percent in the Gross Domestic Product (GDP) which itself had been revised downward from 8.7 percent as predicted by Troika analysts. The IMF still estimates a downturn of 13 percent for 2013-14 and warned it could take another decade for recovery.

A Finance Ministry document, dated Jan. 22, did not offer specific forward guidance on recession projections for 2014, but said the economy still faced challenges amid a weak growth outlook.

In December, the IMF trimmed its forecast for the island’s economic contraction to 7.7 percent from 8.7 percent, but it stuck by its initial forecast for a cumulative economic downturn of 13 percent for the 2013-2014 period.

The government is still anxious about what will happen to the banks when it finally lifts capital controls that were put in place after it seized 47.5 percent of accounts over 100,000 euros ($137,000).