The Cypriot economy will grow by 3.5% in 2017, followed by a 3.2% growth in the country’s economic output, Hellenic Bank said in its economic review issued on Tuesday.
“Growth is becoming more vigorous and broad-based, contributing to employment growth and the reduction of unemployment, though still remaining high,” the bank said, adding that public finances have been consolidated to a large extent to secure the sustainability of public debt.
The bank notes that significant progress has been made to restructure and restore confidence in the Cypriot banking system, adding however that the level of non-performing loans (NPLs) is declining but remains very high, which has led to the increase of provision for loan impairments in order to ensure that collateral valuations are reliable and underpin appropriate levels of provisioning.
“While decisive steps were taken and swift progress has been achieved throughout the banking sector, the high share of NPLs still exists,” the bank said, pointing out that creating the conditions for a functional secondary market for NPLs will help to accelerate deleveraging and move NPLs off banks’ balance sheets.
Hellenic Bank points out that accelerating structural reforms would contribute to the revitalization of productive investments which have recently picked up but are still impeded by certain structural weaknesses (for instance, time delays with construction permits and enforcement of contracts).
“The cost of the reforms may have negative effects on the economy’s short-term prospects, but it is the only path to sustainable growth,” the review said, adding that improving the business environment and making it more conducive to growth would support both domestic and foreign investment.