Next Up For Cyprus: Depression
Depression for Cyprus: Our Cypriot GDP forecast entails a drop of just over 20% in real GDP by 2017. This forecast had already factored in much what was agreed, but did not account for the additional uncertainty shock generated by the past week’s appalling political mess. Risks are clearly on the downside and Cyprus will in all likelihood require additional financial assistance further down the road. Accounting for less than 0.3% of euro area GDP, any downward revision to Cyprus will be barely visible on the euro area aggregate.
So much for the hope of recreating Iceland, and actually growing in 2-3 years. Congratulations Cyprus - you may have a depression for the next four years, but at least you have the € (and helped Merkel win the September election).