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European Commission: Economic Growth in Cyprus has Exceeded Expectations

Projections of Cyprus’s economic growth have been revised sharply upwards, both by European institutions and local analysts, according to documents released on Thursday.

The European Commission Autumn forecast said on Thursday that growth in 2017 is forecast to reach 3.5 percent of GDP and to ease but remain robust both in 2018 and 2019.

A similar projection was also made recently by the European Bank of Reconstruction and Development.

Projections by the Economic Research Center of the University of Cyprus Economics Department, which is headed by Nobel Prize winner Christoforos Pissarides, were even more optimistic.

It said in news release that real economic activity is projected to grow by 3.6 percent this year, compared to an original estimate of a growth closer to 3 percent, after a strong show in both the third and final quarters this year.

In 2018, real GDP growth is forecast to remain robust at 3.3.

The European Commission said that economic growth in Cyprus “has exceeded expectations in recent quarters.”

It also said that domestic demand is expected to continue to be the main driver of expansion, which will contribute to the further reduction of unemployment.

In a more detailed analysis, the Economic Research Center said that factors driving the solid growth rates forecast for the following quarters include the robust activity and employment growth rates registered in Cyprus in the first half of 2017.

On the downside, all analysts cited as factors adversely affecting the Cypriot economy, the still very high rate of non-performing loans, currently standing at 21.2 billion euros (24.6 billion U.S. dollars), following the 2013 crisis and the resolving of the banking system.

They also said that other negative factors are the high ratio of public debt to GDP, incomplete structural reforms and the introduction of permanent expenditures with longer-term budget effects.

Downside risks stemming from the external economic environment relate to slower-than-expected growth in Britain, one of the key trading partners of Cyprus and its main source of tourism, and further depreciation of the pound against the euro.