Turkish government cuts growth forecasts sharply

By bne IntelliNews October 4, 2016

Turkey’s government has cut the growth forecast for this year and next sharply after the economy was hit by a string of terrorist attacks and a failed coup attempt.

GDP growth would hit just 3.2% in 2016, well below the government’s previous target of 4.5%, Prime Minister Binali Yildirim said on October 4 when presenting his government’s 2017-2019 medium-term program. The new forecast sees the economy expanding at the weakest pace since 2014. The growth estimate for 2017 was lowered to 4.4% from 5%.

GDP growth already slowed to 3.1% y/y in the second quarter of this year versus 4.7% y/y in the first three months of 2016 as domestic demand, the main driver of growth, lost steam. The country’s central bank expects economic activity to further weaken in Q3 but to recover in the final quarter of the year.

Turkey's economic growth will likely ease to 3.3% this year from 4% in 2015, the International Monetary Fund (IMF) said in the latest edition of its Word Economic Outlook (WEO), also published on October 4.The estimate represents a 0.5 percentage point downgrade on IMF's previous forecast made in April. Growth is expected to furher weaken to 3% next year, also a downward revision from April's estimate of 3.4%.

The government is responding to the slowing growth by announcing a set of measures aimed at boosting domestic demand. The government's new economic programme forecast a GDP growth of 5% for 2018.

End-2016 inflation is seen at 7.5%, unchanged from the previous estimate, but end-2017 inflation forecast was revised upward to 6.5% from 6%, Yildirim told a press conference in Ankara. Turkey’s annual inflation stood at 7.28% in September, easing from 8.05% in August, raising prospects of a yet another rate cut by the central bank later this month. Consumer price inflation will come down to 5% in 2018, according to the government's new forecasts.

The government also revised its current account deficit forecast for 2016 to 4.3% of national income or $31.3bn from a previous 3.9% or $28.6bn, while upgrading the 2017 estimate to 4.2% or $32bn from 3.7%.

Turkey’s tourism revenues, which generate much-needed hard currency to plug the current account gap, has suffered from heightened security risks and geopolitical tensions since the beginning of the year. Revenues are now forecast to reach $18.6 this year, sharply down from the previous estimate of $27bn. Exports and imports are seen at $143.1bn and $198bn, respectively this year, revised down from $156bn and $211bn expected earlier.

The budget gap will likely reach 1.6% of GDP this year and 1.9% in 2017 before shrinking back to 1.6% in 2018. Privatisation revenues will fall to TRY13bn next year from this year’s TRY15bn, according to the programme.

Goverment targets for 2016 in Medium-Term Programme
  Old Revised
GDP growth 4.5 3.2
Inflation 7.5 7.5
Exports (USD, bn) 156 143.1
Imports (USD, bn) 211 198
Current account deficit (USD, bn) 28.6 31.3
Current account deficit (% of GDP) 3.9 4.3

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