Turkey remains in a difficult place both politically and economically that is weighing on growth. Analysts expect Turkey to be dogged by this uncertainty for at least two years depressing the economic outlook until at least 2019.
The government forecasts GDP growth of 3% for 2016 and a higher expansion of 4.4% this year. But, international institutions, including Fitch, the World Bank, and the OECD, find these estimates a bit too optimistic.
Business sentiment plunged auguring a slower return to recovery in 2017 and leading the government to start discussing more desperate measures like temporary tax cuts as a way to boost growth. Unemployment has also started to climb again, topping 11.8% in October, after falling to about 9% in the summer.
End-2017 inflation expectations have risen in January, driven by the rising consumer price index and the depreciating Turkish lira, according to a recent central bank survey. Annual consumer price inflation soared to 9.2% while the lira has lost more than 8% of its value against the USD since the start of this year.
The economy is still reeling from the virtual collapse of its tourism business following the sanctions imposed by Russia and exacerbated by the war next door in Syria and the associated flood of refugees.
Besides the currency’s woes and the slowing economy, investors have one other major issue to worry about: politics.
Turkey is heading towards a referendum on the presidential system in April that could give sweeping powers to president Recep Tayyip Erdogan. It is also toying with the idea of reintroducing the death penalty, which would kill off the last hopes of eventual EU membership. The government argues that the presidential rule will ensure more political stability and stronger economy through more effective governance. This may be true in the long run, but investors, who are also concerned about the short-term prospects, fear that the government will spend much of its energy on the upcoming popular vote and forget about the reforms that are needed to reignite the engine of economic growth.
Turkey will also continue to be plagued by terrorist attacks connected to both the conflict going on over the border in Syria and also a de facto civil war between the authorities and the Kurdish minority.
In the meantime, Erdogan has continued to purge the entire state economy of suspected “Gulenists” and recently sacked another 10,000 doctors and teachers. The purge has affected hundreds of thousands of people and as a state of emergency remains in place Erdogan has almost complete control of the country.
However, under the headline figures and political brouhaha the core Turkish economy continues to chug on. The PMI production index rose and wages remain stable, although retail sales remain low.
Other than that the banking sector is one sector that is doing well, with most of the leading banks reporting very strong profit growth in 2016 - a trick they are not expected to be able to repeat in 2017.
As far as the growth outlook is concerned, the central bank expects economic activity to remain on a moderate upward track. But it noted that “investment is recovering at a slower pace than consumption spending. Against this background, domestic demand is expected to pick up slightly in annual terms in the final quarter. Domestic demand remained relatively subdued but growing EU demand continues to stimulate exports.”
The increased likelihood of the adoption of protectionist policies in the US under the Trump administration poses a downside risk to the pace of growth and employment in emerging economies, the national lender also warned.
To Purchase This Report - Click Here
This is going to be a tough year for Belarus. The economy is still in recession and should be growing modestly, but pressure from Russia due to a row over energy subsidies means it is not.
The ... more
The political tensions have further eased through March, but the activity of Romania’s government is still hindered by hardly functional political majority. A conflict within the junior ruling ... more
The commodity-dependent Kazakh economy is experiencing one of its toughest years in over a decade as a result of low oil and other commodity prices together with a slowdown in major trading partners ... more