Page 24 - TURKRptDec19

around 3% in 2020, well below potential growth which itself has weakened and which may decline further due to increased policy-related distortions in the economy​, the OECD said in its latest economic outlook released on November 22.
“Investor confidence remains fragile and investment has declined sharply,” the OECD added in its note on Turkey.
“Tourism exports benefited most, soaring by more than 15% in real terms in the first seven months of the year. Manufacturing export orders from the European market have contracted, but aggregate exports have remained positive. In contrast, employment has declined through 2019, despite considerable additional job creation in public and social services. Despite a strong pro-cyclical decline in labour force participation, the rate of unemployment excluding agriculture increased to 15% in the May-July period and the rate of youth unemployment to 25%,” the note said.
Warning that Turkey’s macroeconomic policy draws excessively on “opaque instruments”, the OECD stated: “Public banks have strongly supported private consumption by rescheduling households’ credit card and other debt, extending additional consumer loans, and offering subsidised housing and car credits. Consumer loans grew more rapidly than commercial credits, reaching the very high annualised rate of 25% in early October. At the same time, the exchange rate, which had depreciated by 33% against the US dollar after the August 2018 shock, and the country risk premium, which had risen severely, regained some ground.
“The lira exchange rate and the country risk premium nevertheless remain exposed to bouts of volatility arising from political and geopolitical uncertainties, which have risen recently. Against this backdrop, the high degree of dollarisation of domestic savings and credits further increases volatility risks for the Turkish Lira.”
Looking at how a new economic programme introduced in September intends to lift Turkish GDP growth sharply in 2020 (the government is targeting 5%) and 2021, the OECD noted the pressure on public banks to lend more.
It said: “As private consumption is hindered by high unemployment and low household confidence, and as private banks (which face higher loan delinquencies and are undergoing large-scale loan restructurings) remain prudent, public banks and other government financial institutions are being solicited on an ever-larger scale.
“Public banks are also reported to be undertaking foreign exchange operations to help stabilise the exchange rate, within the scope provided by regulations. Together with additional subsidies and incentives to selected businesses and projects, capital formation is being stimulated largely through policy leverage. This shift may raise important risks for the quality and sustainability of capital formation in the business sector, including in activities exposed to large capital misallocation risks such as energy and real estate development. This may compound the observed past decline in productivity growth and the potential
24​ TURKEY Country Report​ December 2019 ​ ​www.intellinews.com