Despite the expected slowdown in Turkey in the second half of the year, the faster GDP growth in the second quarter leads to revising up growth forecast to 3.2 percent for 2015
according to the World Bank’s Turkey Regular Economic Brief[i]
(October) - issued today in Ankara. Seasonally adjusted GDP grew by 1.3
percent quarter-on-quarter in the second quarter. Private and public
consumption continued to lose momentum as expected but, private
investment unexpectedly surged and became the main driver of growth- an
indication that the private sector front-loaded investment spending
before the June election or realized previously postponed investment,
anticipating elimination of uncertainties after the election.
The Brief notes that the hoped-for external adjustment fueled by a weaker lira and significantly lower oil prices has not materialized.
Despite a significantly lower energy deficit, Turkey`s current account
deficit widened to $45 billion in the 12 months through July 2015 (gold
adjusted), compared to $42.6 billion in 2014. The deterioration in the
deficit is mainly due to weaknesses in trading partners, particularly
slow growth in the EU, difficulties in MENA and Russia, and a fall in
tourism revenues over the summer of 2015.
Domestic political concerns and global financial market jitters dried
up short-term inflows. Although the quality of finance improved thanks
to lengthening maturity, net inflows fell short of financing the current
account deficit in the first seven months of the year.
The Brief indicates that Inflation is likely to remain above
target in 2015 around 7.5 percent. Food prices started to rise rapidly
again, pushing food inflation momentum up to 14.7 percent in September.
Renewed currency depreciation brought core inflation above 8 percent and
its momentum above 10.5 percent. Particularly, a sharp increase in
automobile prices due to depreciation added significantly to inflation
in September. As a result, 12-month inflation climbed to 7.9 percent in
September.
According to the Brief, Economic activity is expected to decelerate in the second half of 2015.
Credit growth momentum...
fell below the Central Bank`s reference rate of
15 percent by mid-September. In addition, continuing political
uncertainty and tensions in Turkey’s south-east make it difficult for
the private sector to sustain the investment spending witnessed in the
second quarter. Businesses are likely to cut investment spending from
the second quarter and postpone investment decisions until a new stable
political equilibrium is reached. External adjustment should continue,
as lower oil prices will likely bring the current account deficit down
by another $5 billion in the remainder of the year.
The Brief confirms that Turkey`s current account deficit
remains high and unlikely to fall below 5.5 percent without significant
structural reforms, given the current external environment. Meanwhile,
net financial inflows to Turkey dropped since May 2013, and
normalization of global monetary policies will make the competition for
foreign funds fiercer among developing countries with higher costs. “There
is an urgent need for political stability and to return to implementing
the structural reform agenda to restore investor confidence, address
vulnerabilities and lift growth” indicates the Brief.
The World Bank’s work in Turkey is based on a joint Country
Partnership Strategy (CPS) for the period 2012-2016. The CPS aims to
support Turkey’s transition to high income with financing of up to US$
6.45 billion during the five year period, as well as with policy
analysis and advisory services. Key objectives include enhanced
competitiveness and employment, improved equity and public services and
deepened sustainable development. The World Bank’s partnership with
Turkey is evolving to include the sharing of knowledge and experience
with a wider international audience.
[i] Turkey Regular Economic Brief is a two page
brief assessing current developments in the Turkish macro economy and
provides World Bank quarterly forecasts on key macroeconomic variables,
linking these to underlying trends in structural reforms.
