Cyprus recession shallower than expected

The recession in Cyprus looks set to be shallower this year than expected, but recovery will also be slower than anticipated, the country's international lenders said on Saturday. At the same time, the European Commission, European Central Bank and International Monetary Fund, or troika, said Cyprus continued to meet its targets under an austerity plan adopted in exchange for their 10 billion euro ($13.7 billion) bailout in March 2013. "While the recession this year is expected to be somewhat less severe than anticipated, the outlook remains challenging," a joint statement said after a team of experts from the troika completed its fourth review of the economy since the bailout. The troika now forecasts a contraction of only 4.2 percent in GDP this year, compared with a projection of 4.8 percent made in February. That would follow on the heels of a 5.4 percent drop in 2013, which was more than two percentage points better than initially expected. Looking ahead, the lenders noted that "unemployment remains very high and large non-performing loans are constraining the ability of banks to supply credit to the economy." With domestic demand weighed down by the need to reduce very high levels of indebtedness, recovery will be "more subdued than previously forecast, with growth projected at 0.4 percent in 2015 and gradually improving thereafter." The troika urged the authorities to continue taking steps to reduce the weight of non-performing loans, to keep public finances on a sustainable path and to strengthen institutions. Eventual approval of the latest review by the EU and the IMF would open the way for disbursement of the latest tranche of bailout money -- 600 million euros from the EU and 86 million euros from the IMF.