Turkey’s economy will shrink 3.4% in 2020, a Reuters poll showed on Wednesday, a much bleaker outlook than government forecasts, as the coronavirus pandemic triggers an annual contraction for the first time in more than a decade.
The median forecast in the Oct. 13-20 Reuters poll of 48 economists in and outside Turkey for 2020 growth compared with a median 4.2% contraction in the previous poll. Ankara sees the growth of 0.3% this year but has said a contraction of 1.5% was possible under a worst-case scenario.
The third and fourth quarters of 2020 will see year-on-year contractions of 2.6% and 2.3% respectively, according to the median poll estimate, after a 9.9% contraction in the second quarter, when restrictions imposed to curb the coronavirus hit hardest.
Ankara halted intercity travel, imposed weekend lockdowns, shut schools, restaurants, and bars, and closed some factories to slow the spread of the respiratory pandemic before most restrictions were lifted in June.
But the economy is expected to bounce back sharply to hit 4.1% growth in 2021, according to the poll, though still well below the government’s forecast of 5.8%. The outlook is vulnerable to uncertainty around another wave of the coronavirus, said Berna Bayazitoglu, of Credit Suisse.
“The recovery beyond the near term is also subject to uncertainty due to Turkey-specific factors, such as the further impairment during this period of corporate balance sheets and the overall lack of policy credibility/visibility,” she said.
Turkey’s economy last contracted on an annual basis in 2009, by 4.7%. From 2010 to 2018, its average growth rate was more than 5% due mainly to a construction boom driven by cheap capital following the global financial crisis. CENTRAL BANK Turkey’s central bank has recently tried to balance supporting resurgent economic activity with taming stubborn double-digit inflation and defending an ailing lira that has hit record lows over the past two months.
The lira <TRYTOM=D3> has lost some 25% of its value so far this year.
The central bank is facing one of the biggest challenges among central and eastern European central banks, UniCredit said in a note, adding it would likely hike again this year.
“We expect currency depreciation to add at least 2.5 percentage points to inflation,” which will peak at 13.8% in April 2021, it said. The bank “is likely to tighten liquidity as well to stave off depreciation”, it added.
Analysts said the bank was under pressure from President Tayyip Erdogan not to raise rates.
Last month, it unexpectedly hiked its policy rate by 200 basis points to 10.25%, the first such move in two years, and was expected to raise it further to 11.75% by the end of 2020. Annual inflation, which has hovered around 12% over the past several months, was expected to stay around that level until the end of the year. It was seen declining to 10.7% at the end of next year and to 9.7% at end-2022, all higher than Ankara’s expectations. The current account balance, which recorded a rare surplus last year as the economy slowed, has since returned to a deficit. The deficit is expected to stand at 3.8% of GDP this year and 3.0% next, according to the poll.