Turkey raised its economic growth forecast on Monday to an ambitious 5 percent for next year and lowered its inflation outlook to 8.5 percent, as the government sketched out a relatively quick rebound from recession that manages not to stretch the budget, Reuters reported
A presentation by Treasury and Finance Minister Berat Albayrak showed the major emerging market economy was expected to grow by 0.5 percent in 2019 and 5 percent in 2020, compared to last year’s forecast of 2.3 percent growth for this year and 3.5 percent for next.
“We have achieved a soft landing,” said Albayrak, adding that leading indicators pointed to a recovery in the current third quarter, following three straight quarters of year-on-year contraction after last year’s currency crisis.
The gross domestic product (GDP) growth forecast for 2021 was unchanged at 5 percent, with 2022 also seen at that level, which would return Turkey’s economy to its average growth rate in recent years in which it was driven by cheap credit and a construction boom.
Last year’s crisis chopped nearly 30 percent off the value of the lira and sent Turkish inflation soaring above 25 percent, leaving construction and other companies with large foreign currency loans deeply in debt.
As a result, the central bank aggressively hiked rates as the economy tipped into recession and unemployment shot higher.
Inflation has since dipped to 15 percent, and the bank has slashed rates 750 basis points in the last two months to encourage a recovery in domestic demand, with analysts expecting a bit more monetary easing before year end.
Albayrak said the “coordination” between monetary and fiscal policies would continue, adding that the government strongly supports the central bank’s fight against inflation.
Turkey also trimmed its 2019 and 2020 inflation forecasts to 12 percent and 8.5 percent, respectively, from last year’s predictions of 15.9 percent and 9.8 percent, respectively. The 2021 forecast was unchanged at 6 percent, according to Ankara’s annual medium-term program.
Inflation is expected to fall briefly to single digits in October before rising toward year-end, whereas unemployment rate is expected to rise to 12.9 percent in 2019 from 11 percent last year, before falling to 11.8 percent in 2020
That, along with a shift to more accommodation among the world’s major central banks, has stemmed further losses in the lira this year and opened the door to a faster recovery in the Middle East’s largest economy.
Albayrak, who is Turkish President Tayyip Erdoğan’s son-in-law, said the budget will be used to finance what he called a production-based transformation of the economy.