Page 22 - TURKRptJul19

3.1 Macroeconomic overview
Turkey set for 1% contraction in 2019 GDP: World Bank. The World Bank now sees Turkey’s economy contracting 1% in 2019, according to the June issue of its twice-yearly Global Economic Prospects report released on May 4. The international financial institution revised down its expectation by 2.6pp from the assessment given in the January issue of the report. Turkey’s debt- fuelled economy has suffered a painful hard landing, considering the 7.4% ‘warp drive’ expansion it experienced in 2017 and 2.6% growth rate (estimated by the World Bank, possibly subject to later revision) posted in 2018. In 2020, Turkish growth will come in at 3%, if the World Bank’s latest forecasting for 2020 proves correct.
Turkey technically exited recession in Q1 this year—its seasonally and calendar-adjusted GDP grew by 1.3% q/q in the quarter following the contractions seen in the previous three quarters, statistical institute TUIK said on May 31. However, there are fears that the recovery was driven by a pre- local elections credit expansion and that Turkey could dip back into recession later this year.
“Subdued investment”. In its latest Global Economic Prospects report, entitled “Heightened tensions, subdued investment”, the World Bank warned: “Global growth has continued to soften this year. Subdued investment in emerging market and developing economies (EMDEs) is dampening potential growth prospects. Risks to the outlook remain firmly on the downside, including the possibility of escalating trade tensions. “Another concern is rising debt, which may make it difficult for EMDEs to respond to adverse developments and to finance growth-enhancing investments. Reforms to boost private investment and productivity growth are needed, particularly in low-income countries, which face more significant challenges today than they did in the early 2000s.”
Turning to Turkey, hit by a currency crisis last summer which some observers fear could be repeated this year, the report said: “In Turkey, growth is expected to be weighed down by increased inflation and associated pressure on real incomes, banking and corporate sector deleveraging following several years of rapid credit growth, and low business and consumer confidence. “Activity is expected to bottom out in 2019, with annual growth contracting 1 percent, but the recent flare up in financial market pressures highlight that downside risks remain sharply elevated. The recovery is assumed to strengthen in 2020 through gradual improvement in domestic demand and continued strength in net exports, provided that fiscal and monetary policy avert further sharp falls in the lira and corporate debt restructurings help avoid serious damage to the financial system.” The report also noted that the financial stress in Turkey has had limited spillovers to other
22 TURKEY Country Report July 2019 www.intellinews.com