Government spokesman Prodromos Prodromou said that the 4 per cent annual growth rate in the first quarter reported on Friday by Cystat confirms that the economy continues on a growth course for a thirteenth consecutive quarter and may grow faster than forecast.

“Economic growth in 2018 is projected to be at least 4 per cent, which is higher compared to previous forecasts,” said Prodromou, an economist appointed in March as government spokesman, in an emailed statement. The Finance Ministry said in April that it expected the economy to grow 3.8 per cent this year.

The Cypriot economy, which emerged from a prolonged recession in 2015 caused by a twin banking and fiscal crisis that culminated in 2013, proves wrong those who criticised the government’s strategy and forecast instead a “vicious circle of recession,” he added.

The government spokesman said that the 4 per cent growth in the first quarter was a positive surprise as Cystat’s initial flash estimate announced three weeks ago, was 3.8 per cent.

The Cypriot government, owner of the Cyprus Cooperative Bank in to which it had to inject another €2.4bn two months ago with the issue of government bonds on top of the €1.7bn capital injections in 2014 and 2015, is currently in a race against time to convince lawmakers to modernise legislation to help banks reduce their non-performing loans of around €22bn, or roughly half of their portfolio. Failure to do so may negatively impact financial stability.

Following the completion of the cash-for-reforms programme financed by the European Stability Mechanism (ESM) and the International Monetary Fund (IMF) more than two years ago, which provided for structural reforms and austerity measures, the government repeatedly gave in to union demands. In 2017, it agreed to grant nurses at state hospitals pay rises which it rejected a year before on the grounds that doing so would encourage other unions to raise similar demands, which ultimately did happen.

In May, the government agreed to gradually take back pay cuts of workers at government-owned corporations, agreed more than six years ago to contain the then looming fiscal derailment. Its decision stunned business groups who insisted that the pay cuts were permanent and may upset fiscal planning.

The government generated last year a fiscal surplus of 1.8 per cent of economic output which expanded 3.9 per cent and helped the government reduce its debt to 97.5 per cent of the economy. The issue of bonds in favour of the Co-op two months ago, is expected to increase public debt again above the 100 per cent mark.

“The Cypriot people’s efforts result to the economy’s inclination to growth, oblige the government to continue with decisions, actions and policies to ensure and maintain a stable environment, and to further support and even more strengthen our economy’s growth” the spokesman continued.