Page 8 - MEOG Week 23

MEOG FInanCe & InVestment MEOG
Turkey set for 1% contraction in 2019 GDP: World Bank
tUrkey
THE World Bank now sees Turkey’s economy contracting 1% in 2019, according to the June issue of its twice-yearly Global Economic Pros- pects report released on May 4.
e international nancial institution revised down its expectation by 2.6pp from the assess- ment given in the January issue of the report. Turkey’s debt-fuelled economy has su ered 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, pos- sibly 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. How- ever, 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 invest- ment”, 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 rmly on the downside, including the possibility of escalating trade tensions.
“Another concern is rising debt, which may make it di cult for EMDEs to respond to adverse developments and to nance growth-en- hancing investments. reforms to boost private investment and productivity growth are needed, particularly in low-income countries, which face more signi cant 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 Tur- key, growth is expected to be weighed down by increased in ation and associated pressure on real incomes, banking and corporate sector deleveraging following several years of rapid credit growth, and low business and consumer con dence.
“Activity is expected to bottom out in 2019, with annual growth contracting 1 percent, but the recent are up in nancial market pressures highlight that downside risks remain sharply ele- vated. e recovery is assumed to strengthen in
2020 through gradual improvement in domestic demand and continued strength in net exports, provided that scal and monetary policy avert further sharp falls in the lira and corporate debt restructurings help avoid serious damage to the nancial system.”
e report also noted that the nancial stress in Turkey has had limited spillovers to other economies in Europe and Central Asia region.
“However, the experience of Turkey is a stark reminder of the risk of sudden shi s in investor sentiment—in particular for countries with large current account de cits or reliance on potentially volatile capital in ows, high external debt loads, or sizeable foreign-currency-denominated debt (Belarus, Croatia, Georgia, Kyrgyz republic, Moldova, Tajikistan, Ukraine),” it added.
risk of structural reform reversal
looking at the worsening trade war situation caused by the Trump administration’s fights with China, Mexico and India, among others, the report re ected: “Further escalation of inter- national trade restrictions could have a negative impact on the region, given its openness to trade and capital ows.
A reversal of structural reforms remains a risk in many countries, especially Armenia, Azer- baijan, Belarus, Turkey, and Ukraine. renewed con ict in the syrian Arab republic or Ukraine could trigger new sanctions.”
Growth in the Europe and Central Asia region is projected in the June Global Economic Prospects report to sharply decelerate to a four- year low in 2019 of 1.6%, down from 3.1% in 2018, and 0.7pp lower than the previous World Bank forecast. It reflected “weaker-than-ex- pected activity in Turkey and russia, as well as some smaller economies”.
In a note on monetary policy across Europe and Central Asia (ECA), the report observed: “In response to deteriorating global growth pros- pects, central banks in major economies have provided additional monetary policy accommo- dation since the start of 2019, resulting in easing global nancing conditions.
e tightening cycle in monetary policy in 2018 has paused in ECA, with some economies cutting policy rates (Armenia, Azerbaijan, Geor- gia, Kazakhstan, Kyrgyz republic, North Mace- donia, Ukraine) or leaving them unchanged in 2019, but overall policy rates in some large ECA economies remain higher than in 2018 (russia, Turkey).”
“Corporate fragility”
recapping on how the Turkish economy slowed
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w w w . N E W S B A S E . c o m Week 23 11•June•2019