Cyprus’ will stay mired in recession through this year and next, the European Commission said on Wednesday, with its cash-strapped banks and the economic gloom in Greece weighing heavily.
The island will see its 17.9 billion euro economy contract by 2.3 percent in 2012 and by another 1.7 percent in 2013, the Commission said in its autumn forecast.
Wednesday’s predictions offer a stark contrast to data compiled by the Commission in May, when it anticipated a 0.8 percent decline in output this year and growth of 0.3 percent next.
The economic crisis in neighboring Greece, with which Cyprus has close business ties, clouded the outlook, the Commission said.
“Any worsening of the economic situation in Greece remains a significant downside risk for Cyprus as well as any further needs of recapitalization for the domestic banks,» it said.
Hit by its worst recession in almost 40 years and battered by its banks’ exposure to Greece, Cyprus turned to its EU partners and the IMF for financial aid in June.
A final round of talks with lenders on a bailout that could exceed 10 billion euros was expected from November 9, government officials said on Wednesday
The bailout figure is expected to weigh considerably on a public debt, which surged from an estimated 71 percent of GDP in 2011 to a now-forecast 89.7 percent in 2012 because of the state’s commitment to aid one of the banks.
The Commission forecast that public debt would rise to 96.7 percent in 2013 and 102.7 percent in 2014.
The Commission said austerity measures implemented by the Cypriot government, record-high unemployment and a high degree of economic uncertainty had sapped private consumption, a trend set to continue through 2013 to 2014.
Unemployment was set to reach 12.1 percent in 2012, 13.1 percent in 2013 and spike to 13.9 percent in 2014, the Commission said.
A bright spot on the horizon was a positive growth in tourism. That was set to continue since the island continued to attract visitors away from competing Mediterranean destinations.