Belfast Telegraph

Saturday 23 August 2014

Cyprus bailout provides only 'short term calm'

The global economy will grow in 2013 despite the reemergence of a banking crisis in Cyprus, according to Danske Bank.

Its Global Scenarios report pegged global growth at 3.6% in 2013 and 4% in 2014, led by a strong recovery for the US.

The European economy isn't expected to see growth until the second half of 2013 and still runs the risk of a flare up in its banking system if the problems in Cyprus spread.

Danske Bank chief economist Angela McGowan said: "The recent Cyprus bailout deal may give short-term calm to markets but it unfortunately raises new potential problems as capital controls and losses on deposits set a dangerous precedence.

"Because of this bail-out deal, future problems in Greece or Spain could escalate much faster – as losses on deposits above €100,000 (£84,000) will now be seen as a real possibility".

The Global Scenarios report noted that although the financial markets celebrated the European Central Bank's policy decision last summer to support bond markets for peripheral countries if needed, the real economy in the euro area never joined the celebrations.

Instead, the recession deepened more than expected late last year with GDP declining by 0.6% in Quarter 4.

The near-term outlook in the euro area has worsened especially in Italy and France. Spain also looks so fragile that it is likely to be in recession throughout the forecast period. While Germany has the potential to show strong growth due to its export-orientated economy, German manufacturing indicators have recently moved into recessionary territory.

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