European bank revises up Turkey's 2018 growth forecast

Turkey's 2018 growth forecast up to 4.4. pct from 3.5 pct, according to European Bank for Reconstruction and Development

European bank revises up Turkey's 2018 growth forecast

World Bulletin / News Desk

The European Bank for Reconstruction and Development (EBRD) has revised upwards Turkey’s 2018 growth forecast from 3.5 percent to 4.4 percent, it announced Wednesday.

“Growth in Turkey is projected to moderate from 7.4 percent in 2017 to 4.4 percent in 2018 as the effect of fiscal stimulus wears off and as limits to credit growth lead to a cooling-down of domestic demand,” said the bank’s new Regional Economic Prospects report.

“But this may be partly offset by higher exports, reflecting weakness in the lira and rising demand in key export markets. Growth is expected to moderate further (4.2 percent) in 2019.”

“Strong public finances and a stable banking system remain the key anchors of the economy, despite the recent loosening of fiscal policies and growing contingent liabilities. A significant strength of Turkey is its low public debt (of around 29 percent of GDP) and its low budget deficit (which stood at 1.5 percent of GDP at end 2017 notwithstanding a slight increase as a result of the expansionary fiscal policies),” the report added.

“The banking system remains well capitalized, with an NPL [non-performing loans] ratio below 3 percent, although the effects of the rapid credit growth associated with the CGF [Credit Guarantee Fund] remain to be seen.”

Noting that the rapid growth has seen inflation grow to double digits and a rising current account deficit to around 6 percent of GDP, the bank said: “This has led to concerns about overheating in the economy.”

The report also said that the government will have room to rebalance policy sooner, adjusting fiscal and macroprudential policy to address overheating concerns and reducing domestic and external imbalances, with elections brought forward to June 24.

“It will also be important to address inflation and anchor inflation expectations by tightening monetary policy. This is key to reassuring investors at a time when the global cycle is turning. With gross external financing needs likely to exceed 25 percent of GDP in 2018, the country will remain highly exposed to changing global liquidity conditions, particularly given weak FDI [foreign direct investment] inflows and limited FX [foreign exchange] reserves."

Last Mod: 09 Mayıs 2018, 16:28
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