EBRD's transition scores for sustainable market economy qualities show fall in Turkey's financial resilience

By bne IntelliNews November 19, 2019

The European Bank of Reconstruction (EBRD) on November 19 released its 2019 “Transition scores for six qualities of a sustainable market economy” and its latest overall “Transition Report 2019-2020” for the 37 economies it invests in.

The transition scores range from 1 to 10, where 10 represents a synthetic frontier corresponding to the standards of a sustainable market economy.

For Turkey, the scores were given as Competitive – 5.42 in 2019, 5.19 in 2018; Well-governed – 6.18 in 2019, 6.17 in 2018; Green – 5.28 in 2019, 5.28 in 2018; Inclusive – 5.01 in 2019, 5.01 in 2018; Resilient – 7.02 in 2019, 7.34 in 2018; and Integrated – 5.70 in 2019, 5.71 in 2018.

In the report, the EBRD also noted: “Progress in terms of institutional development has varied substantially across countries. In Turkey, for instance, firms regard the business environment as less conducive to the growth of their operations than they did 10 years ago.”

The report also said that Turkey's financial resilience score had fallen partly reflecting a decline in its score for risk management practices and weaknesses in its governance standards. “The unexpected dismissal of the governor of the Central Bank of Turkey has also been viewed with concern by market participants,” it added.

Growth in the EBRD regions has been slowing since the middle of 2018, the report said, with the deceleration driven by a very sharp slowdown in Turkey and weaker export growth across the EBRD regions, mirroring the global slowdown in trade.

Economic growth, the report added, is expected by the EBRD to moderate further in 2019, in line with less
favourable external conditions, before picking up somewhat in 2020 as the recovery in Turkey takes hold.

“Following a recession, growth in Turkey is expected to recover in 2020 (reflecting, among other things, a lower base value for output in 2019). This forecast is in line with Turkey’s rapid recoveries following previous recessions, but remains subject to significant uncertainty,” it said.

Questioning Turkey’s commitment to competitiveness, the report said Ankara has adopted a policy that could potentially undermine competitiveness by ordering retail chains to freeze or reduce the price of food products following significant declines in the value of its currency.

Another conclusion of the report was that the financing conditions faced by economies in the EBRD regions tightened throughout 2018, but have generally eased since January 2019. “That tightening of financing conditions primarily affected capital flows to economies with underlying weaknesses—notably Turkey.” it said.

Growth in the EBRD regions averaged 2.1% y/y in the first half of 2019, down from 3.4% in 2018 and 3.8% in 2017.

In Turkey, annual growth hit 2.6% in 2018, down from 7.4% in 2017. “The economy entered a recession in the second half of 2018 amid a tightening of monetary policy, private-sector deleveraging and a deterioration in consumer and investor sentiment. Output then contracted by 1.9 per cent year on year in the first half of 2019,” the report recapped.

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