ISTANBUL: Turkey on Tuesday cut its growth forecast for 2016 to just above three percent, as the global economic environment and effects of the July failed coup take their toll on the economy.
The substantial snip of the growth forecast was the latest in a slew of bad news for Turkey’s economy after Moody’s downgraded its government debt to junk status and with the Turkish lira coming under new pressure.
“The growth that we are going to have is not the one that we were targeting,” Prime Minister Binali Yildirim said in Ankara. “Global negative factors also have an effect on us,” he said.
Yildirim said gross domestic product (GDP) would grow 3.2 percent in Turkey in 2016 compared with the previous forecast of 4.5 percent.
In 2017 GDP would expand 4.4 percent and from 2018-2019 is expected to return to a rate of five-percent growth, Yildirm said.
The prime minister did not directly refer to the July 15 attempted putsch and plunge in tourism following extremist attacks this year, which economists expect have eaten into Turkey’s GDP growth in 2016.
With tourism making up 4.4 percent of Turkey’s GDP, the plunge of almost 40 percent in foreign visitor numbers to the country over the summer is a major issue for the economy.
Statistics showed last month Turkey’s economy grew 3.1 percent in the second quarter, slowing sharply from the strong figure of 4.7 percent the first quarter.
‘Hard to achieve’
Gokce Celik, chief economist at Finansbank in Istanbul, said in a note to clients that the government’s 4.5-percent full-year growth forecast had already been “too ambitious”.
“Economic activity already started to lose steam in the second quarter and a more substantial slowdown—a
negative sequential figure—was very likely recorded in the third quarter.”
“Even the revised projection might prove hard to achieve,” she said, adding there were downside risks to the bank’s own 2016 growth forecast of three percent.
Turkey has enjoyed robust growth for much of the last decade in one of the key achievements of the ruling party of President Recep Tayyip Erdogan and the source of much of his popularity.
Erdogan is banking on strong growth in the next years to realize his strategic target of making the country one of the world’s top 10 economies by 2023.
The move by Moody’s last month to downgrade to Ba1 its assessment of Turkey’s capacity to pay back debts brought the rating into the speculative junk status.
Ankara has reacted with fury to the move, particularly stung by suggestions Turkey’s institutional stability could be weakened by the crackdown in the wake of the coup.
Speaking to his ruling party later in Ankara, Yildirim accused ratings agencies of having an “unfair attitude” towards Turkey.
“The last ratings cut was said to have been justified by institutional weakness,” Yildirim sneered. “Rubbish!”
He pointed out that a 10-year Turkish bond auction launched after the downgrade was three-and-a-half times
However the negative news flow put the Turkish lira under substantial pressure on Tuesday, losing 4.4 percent against the dollar to trade well above three lira to the greenback.
The currency is now at its lowest value since July when investors in Turkey were rattled by the coup.
As well as seeking to stimulate growth as consumer demand droops, the government and central bank however also need to keep a close eye on inflation even as it eased to 7.3 percent in September.
Yildirim predicted inflation would be 7.5 percent for the full year of 2016, dropping to 6.5 percent in 2017 and finally to the central bank’s target of five percent in 2018.
Celik, of Finansbank, said the 2017 inflation projection was “very hard to reconcile” with the 4.4-percent growth forecast, saying this would need “looser monetary and fiscal conditions” to achieve.