The World Bank (WB) said on December 23 that it downgraded the 2014 growth estimate for the Turkish economy to 3.1% from its October forecast of 3.5% while it maintained the 2015 growth forecast at 3.5%. The World Bank on December 23 released its Turkey Regular Economic Note and Focus Note.
Recent currency volatility once more underscores the vulnerability of Turkey to changes in investor sentiment, which limits the room for manoeuvre of the Central Bank to react to the improved inflation outlook and external adjustment with reductions in policy rates, the WB said in the publications, adding that over the medium-term Turkey`s growth prospects depend on the recovery of private investment and this in turn is linked to the implementation of structural reforms.
Its baseline forecast is predicated on the assumption that the Federal Reserve and Bank of England will start gradually increasing the interest rates only in the second half of 2015, the WB said. An earlier than expected tightening of international liquidity presents a downward risk, particularly if it leads the recent turn of investors away from Emerging Markets to be sustained, it warned.
The sharp decline in energy import prices – if sustained – will support stronger growth, external adjustment, and disinflation in 2015, according to the WB. Oil prices of $70 bbl in 2015 will ease the current account deficit by 1.1pp, shave 0.9pp off consumer price inflation, boost growth by 0.6pp, and the impact on the fiscal balance is limited to less than 0.2pp of GDP, the WB said. The WB expects the current account deficit to shrink to $38.4bn next year (4.5% of GDP) from an estimated $44.9bn (5.6% of GDP) this year.
The sharp decline in oil prices, the expected mean reversion in food prices, and the favourable base effect will support disinflation in early 2015, the WB added. The renewed depreciation trend in the lira is the main downside risk on the positive inflation outlook, according to the WB which expects consumer price inflation to fall to 6.7% next year from 9% this year.
|GDP Growth Projections for Turkey|
|EBRD (Sep 2014)||3||3.2|
|European Commission (Nov 2014)||2.8||3.3|
|Turkish Government - Medium Term Programme for 2015-2017 (Oct 2014)||3.3||4|
|IMF (Nov 2014)||3||3|
|Turkish Central Bank survey (Nov 2014)||3.2||3.5|
|World Bank (Dec 2014)||3.1||3.5|
|OECD (Nov 2014)||3||3.2|
|Fitch (Dec 2014)||3||3.3|
|S&P (Nov 2014)||2.9||3|
|Source: ebrd, ec, dpt, imf, tcmb, oecd, world bank, s&p|
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