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Stress test scenarios do not bode well

Residential property prices will fall by 4.0 percent in 2014, while real estate prices in general are predicted to go down by 11.9 percent under the EBA’s pan-European stress test scenarios.

European-Banking-Authority-stress-testsTHE European Banking Authority (EBA) has published the methodology and the scenarios to be used for the 2014 pan-European stress tests, which reveals adverse forecasts for unemployment and real-estate prices this year.

According to the EBA, the stress tests “will identify remaining vulnerabilities in the EU banking sector and will provide a high level of transparency into EU banks’ exposures”.

In Cyprus banks to undergo stress tests include Bank of Cyprus, Hellenic Bank and the Cooperative sector.

The Core Tier-1 capital of the banks undergoing the stress tests will have to be at least 8.0 per cent according to the baseline scenario and at least 5.5 per cent on the basis of the adverse scenario.

The adverse scenario for Cyprus foresees that GDP in 2014 will shrink by 1.5 per cent further than Cyprus’ international lenders, the troika (EC, ECB, IMF) predict and will reach 6.3 per cent while it will be contained at 0.5 per cent in 2015 with a modest 1.1 per cent of growth in 2016.

Unemployment will reach 19.6 per cent in 2014, will fall slightly to 19.4 per cent in 2015 and 18.4 per cent in 2016.

The adverse scenario predicts that inflation will be recorded at about 0.4 per cent in 2014, will go up to 0.8 per cent in 2015 and will reach 1 per cent in 2016.

On the basis of the adverse scenario stock prices in Cyprus will fall by 19.9 per cent in 2014, 20.6 per cent in 2015 and 26.6 per cent in 2016.

Residential property prices will fall by 4.0 per cent in 2014, 6.4 per cent in 2015 and 6.4 per cent in 2016. Real estate prices in general are predicted to go down by 11.9 per cent in 2014, 11 per cent in 2015 and 7.0 per cent in 2016.

Commercial property prices are forecast to reduce by 7.9 per cent in 2014, 6.5 per cent in 2015 and 3.0 per cent in 2016.

The adverse scenario foresees also that the impact of a shock in state funding will affect the increase of real GDP by 0.10 per cent in 2014, 0.21 per cent in 2015 and 0.29 per cent in 2016.

In as far as the baseline scenario for Cyprus in concerned GDP is expected to follow troika predictions according to which the economy will shrink by 4.8 per cent in 2014, achieving marginal growth of 0.9 per cent in 2015 and 1.9 per cent in 2016.

Unemployment will reach 19.2 per cent in 2014, will fall to 18.4 per cent in 2015 and will be reduced even further to 17.0 per cent in 2016, the baseline scenario predicts.

Inflation will range at about 0.4 per cent in 2014, will go up by 1.4 per cent in 2015 and 1.7 per cent in 2016.

Real estate prices in general are foreseen to fall by 7.0 per cent in 2014, 5.2 per cent in 2015 and 2 per cent in 2016.

At the same time commercial property prices are expected to go down by 4.9 per cent in 2014, 3.5 per cent in 2015 and 0.5 per cent in 2016.

– Cyprus News Agency

Readers' comments

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  • MartynG says:

    Adrian, I reckon the Troika and the early stress-tests, which I agree were a ‘joke’, were simply attempts to stop the Euro, and therefore much of the EU, collapsing altogether. Increasingly now there seems to be evidence that having ‘kept the Euro’, however ill-conceived it had turned out to be, there are greater degrees of ‘realism’ now being applied, fundamentals are being addressed but, for many – most? – of the so-called ‘Club Med’ countries it will I reckon take another 5-7 years to come terms with economic realities, build strong (er) platforms for future, planned growth. We’ll doubtless be told sometime in the future just how close the Eurozone, if not the entire EU, came to total collapse between 2010-13.

  • Adrian says:

    All these figures and predictions are just so much rubbish. If these “experts” are so so good at predicting the future of employment, inflation and house prices how come the missed the huge crash of the banks and prevent it from being so disruptive.

    It was because they talk so much bluster to maintain there jobs.

  • Anna says:

    Not long before I can get a house for free then.

  • Hector says:

    Will the stress tests uncover all the non performing loans the banks have? Are the NPL’s now known and factored in?

  • MartynG says:

    Hurrah! At last the Troika are tackling root problems, here in ROC as elsewhere. This is exactly what RoC needs, almost the entire economic and financial, as well as legal, ‘utilities’, and over-loaded public sector, structures need fundamental long term overhaul. We must all hope the present government has the capabilities and courage! To make this happen.

    2 years ago I predicted a massive Bail-out, that was before Bail-Ins crept onto the Agenda!, and that it would take years of real pain and austerity to turn things, long-term around. I also suggested that if sensible, non-greedy long-term planning, involving strong partnerships with highly experienced oil and gas operators, there might well be serious opportunities for Cyprus to work its way towards becoming a serious player in European and Easter Med energy markets, potentially become ‘another Norway’….

    So, today’s announcements (today’s Cyprus Mail), that Halliburton and Schlumberger, ‘two of the world’s largest oilfield services companies’ have chosen Cyprus as their base of operations for the Eastern Med represent, for me, the first seriously ‘green shoots’ that a new ‘resources focused’ can emerge from the recent economic and financial messes. Talk continues about re-focusing Cyprus’ outdated ‘tourism model’ and, yes, if innovative new thinking and practices could be achieved (little sign of this yet) the country could with its highly favourable climate and attractive natural resources, rebuild it’s tired tourism propositions into something that would really ensure, along side ‘MedGas’ and Marine Services, engender a seriously successful turnaround within the next 5-10 years. Can RoC do it? Let us hope so for the sakes of All of us on this lovely island!!

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