Nicos Anastasiades
Cypriot President Nicos Anastasiades is still under economic pressure (Reuters)

European Union, European Commission and International Monetary Fund officials have warned that Cyprus' road to economic recovery remains rocky.

"The short-run economic outlook remains difficult and subject to considerable uncertainty," a joint report says.

The review outlines that the lenders were pleased that Cyprus had taken the necessary decisive steps to stabilize its financial sector - including imposing capital controls - but says further hard work would be needed to restore economic stability.

"While the programme has been implemented with determination so far, downside risks remain substantial," the publication stresses.

"Continued full and timely policy implementation is essential for the success of the programme."

The lenders' report follows the country's efforts to overhaul its banking sector and push through painful structural reforms as part of an agreement to receive a €10bn (£8.3bn, $13bn) bailout.

The warnings follow the Mediterranean country's economic lock-down in March after the Cyprus stock exchange suspended trading while the nation's banks closed as its lawmakers debated a controversial depositors tax linked to a critical multi-billion euro bailout.

The nation's authorities even launched an inquiry into the country's financial practices, led by three former Supreme Court judges, in a bid to delve into areas of corporate governance and acquisitions.

"The issues raised (by judges) can be resolved by inquiries which will be handled by criminal investigators," says Cyprus' Justice Minister Ionas Nicolaou.

The news comes as hopes that the eurozone is finally recovering from a painful period of long stagnation gained traction as private industry data shows output in the currency bloc gathering pace in August, while its exit from recession in the second quarter is confirmed by official figures.

Markit's Eurozone Composite Output Index, compiled from surveys of purchasing managers, signalled a second successive monthly of expansion in business activity in August.

The index rose to 51.5 in the month, up from 50.5 in July, signalling the fastest rate of growth in over two years, which will please policymakers at key EU institutions.

The final reading PMI reading was slightly below the flash estimate of 51.7 but production volumes expanded to the greatest degree since May 2011. New order inflows were the main element underpinning the fastest expansion in manufacturing output in August.