Cyprus?s bailed out economy is not expected to see any recovery until 2017 when GDP will have contracted by a cumulative 20 percent, auditors Ernst and Young said Thursday.
The EY forecast was far bleaker than that of international lenders who extended the island 10 billion euros ($13 billion) in emergency loans in March in return for an unprecedented eurozone haircut on bank deposits and a raft of painful austerity measures.
?After falling by an estimated 7.4 percent in 2013, Cyprus GDP is forecast to shrink by a further 8 percent in 2014 and 2.7 percent in 2015, against a backdrop of shattered consumer and investor confidence, soaring unemployment and a credit crunch," EY said.
It predicted the recession-hit economy would not return to growth before 2017, by which point economic activity would be 20 percent lower than its pre-crisis peak.
The troika of international lenders -- the European Central Bank, the European Commission and the International Monetary Fund -- project contractions of 7.7 percent in 2013 and 4.8 percent in 2014.
But they see a return to growth in 2015, and forecast GDP rising by 1.1 percent that year and 1.9 percent in 2016.
?Household incomes are coming under enormous pressure from the impact of fiscal consolidation efforts, while the repercussions of the crisis in the private sector are likely to result in a sharp increase in unemployment to around 25 percent of the workforce by 2015,? EY said.
As a result, consumer spending will continue to decline throughout 2013?17.
EY said it will also take time for the remaining capital controls in force on the island -- also unprecedented for the eurozone -- can be be lifted.
?With deposits continuing to decline and non-performing loans at very high levels, it will be some time before conditions in the financial sector stabilise and the remaining capital controls can be lifted.?
In return for the bailout by the troika, the island agreed in March to wind down its second largest bank -- Laiki -- and impose losses on bigger depositors in largest lender Bank of Cyprus.
The unprecedented haircut forced the government to close all the island's banks for nearly two weeks in March to prevent a run on accounts, and impose draconian controls when they reopened.
Restrictions are being eased but a 300 euro a day withdrawal limit remains in place.
?Until conditions improve, banks will have very little appetite to lend new money to any but the very safest companies. Firms that do wish to invest their own cash will be unable to do so freely.?
In its bleak forecast, EY said soaring unemployment could undermine fiscal consolidation efforts by cutting tax revenues and forcing up social transfers.
EY said the economy and financial system would be ?completely destabilised? if fellow bailout country Greece abandoned its efforts to remain in the eurozone.
It said there was ?a glimmer of hope? offered by the island's untapped offshore gas reserves.
?Preliminary reports place the gross value of these reserves at $50 billion, approximately three times Cyprus?s GDP.?