The AKP administration penciled in a very modest 2.3% real GDP growth for 2019, but there is little conviction among supra-nationals that even this target will be reached. After IMF and OECD, Turkey’s most enthusiastic development lender, EBRD, too shaved off its 2019 forecast, to 1%.
IMF: No growth in 2019
The International Monetary Fund said Turkey should implement a swathe of measures to right its economy and finance industry as it slashed the nation’s growth forecast to 0.4 percent for next year.
“The challenges that Turkey faces will require a comprehensive policy package comprising monetary, fiscal, quasi-fiscal, and financial sector policies,” the Washington-based IMF said in its latest World Economic Outlook published on Tuesday.
The fund highlighted problems in monetary policy, which it said should be “tightened to re-anchor expectations”. The country’s central bank has reacted belatedly to faster inflation, it said.
Turkey’s economic downturn – its growth forecast for next year was cut from 4 percent– was a key determinant for a broader downgrade of growth expectations for emerging markets, the IMF said.
OECD: Yes, we concur
The Organisation for Economic Co-operation and Development (OECD) has revised downwards it forecast for Turkey’s real GDP growth in 2019 from 5 percent to 0.5 percent amid the recent pressures on the Turkish lira, the organization’s interim economic outlook.
Turkey’s growth prospects in 2018 have also weakened – from 5.1 to 3.2 percent, according to the document.
According to the outlook, the slowdown in trade growth and the widespread political uncertainty are destabilizing factors for the global economy.
“Trade growth has stalled, restrictions are having marked sectoral effects and the level of uncertainty on trade stances remains high. It is urgent for countries to end the slide towards further protectionism, reinforce the global rules‑based international trade system and boost international dialogue, which will provide business with the confidence to invest… With tighter financial conditions creating stress on a number of emerging economies, especially Turkey and Argentina, a strong and stable policy framework will be key to avoid further turbulence,” OECD Chief Economist Laurence Boone said.
EBRD: Turkey depresses the whole neighborhood
Average growth in the EBRD regions is expected to moderate from 3.8 per cent in 2017 to 3.2 per cent in 2018 and 2.6 per cent in 2019 (see Chart 1 and Table 1). The new projections represent a downward revision compared with the May 2018 forecast (of 0.1 percentage points in 2018 and 0.6 percentage points in 2019), primarily on account of slower expected growth in Turkey, where a sharp deceleration in the second half of the year is expected to bring the 2018 growth down to 3.6 per cent, as the weaker lira and interest rate hikes negatively impact private consumption and investment. On the other hand, the weaker lira is expected to provide a boost to net exports and thus GDP growth. For the first time in three years a monthly surplus was recorded on the Turkish current account in August 2018, compared with a deficit of 6.5 per cent of GDP in the twelve months to June 2018. Growth of around 1 per cent is expected in 2019
The Bank’s report added:
Economic rebalancing forced by the weak lira should help reduce large external imbalances, which arose as consumption-driven growth resulted in a rapid growth in imports, driving the current account deficit to 6.5 per cent of GDP by Q2 2018. Lately, the weak lira has led to a significant improvement in the external trade position, in turn reducing the current account deficit. However, the short term external financing requirement remains high, in excess of 25 per cent of GDP.
The banking system, often considered a key anchor of the economy, is under growing stress. The depreciation of the lira has hit banks’ capital, and their asset quality may be impacted by both their exposure to corporates with large FX liabilities, and the effect of increased interest rates on corporate and household balance sheets, particularly as the economy slows. The Banking Regulatory and Supervisory Authority has introduced several measures to address the issues faced by banks, but there are concerns about the impact of these measures on balance sheet transparency, and confidence in the system.
The lira’s depreciation and interest rate hikes will continue to impact consumption and investment in the short term, although rebalancing should see net exports make an increasing contribution to growth. A sharp slow-down in the second half of the year is expected to bring annual growth in 2018 down to around 3.6 per cent, with a growth rate of around 1.0 per cent expected in 2019. The key risk to the outlook is uncertainty regarding the banking sector but other risks include the direction of economic policy and further depreciation of the lira.
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