Turkey slashes growth forecasts for 2018, 2019 in economic plan, lira falls

FILE PHOTO: Early morning sunlight cuts across residential housing that stretches to the horizon of Istanbul's skyline in Turkey June 13, 2018. REUTERS/Russell Boyce/File Photo
Turkish Treasury and Finance Minister Berat Albayrak speaks during a presentation to announce medium-term economic programme in Istanbul, Turkey September 20, 2018. Mehmet Acar/Presidential Press Office/Handout via REUTERS

ANKARA (Reuters) – Turkey sharply cut its growth forecasts for this year and next on Thursday, but disappointed investors who had hoped for deeper reductions that reflected the fragile state of the economy and a plan to help banks.

Turkey has seen its lira currency plunge by 40 percent this year on concerns over President Tayyip Erdogan’s influence over monetary policy, with the turbulence jolting financial markets around the world.

Finance Minister Berat Albayrak hoped to use his medium-term economic plan to rebuild confidence by giving investors a full account of the country’s economic prospects.

He said growth would be 3.8 percent this year and 2.3 percent in 2019, both revised down from forecasts of 5.5 percent.

Sources, however, had said there was debate among top government officials about the extent of the revisions, underscoring the delicate balance between Erdogan’s long-standing emphasis on credit-fuelled economic expansion and investors’ calls for greater austerity.

“At the moment the programme is a disappointment. First, when you look at the growth forecast, current account deficit forecast, they are too ambitious,” said Guillaume Tresca, a senior EM strategist at Credit Agricole.

“We don’t have anything new, regarding a bad bank, regarding the treatment of (non-performing loans), regarding the foreign-exchange funding of the banking system or the foreign-exchange funding of the corporates. It is lacking details and it is lacking news.”

The lira <TRYTOM=D3> weakened to 6.2962 by 1104 GMT, from around 6.20 beforehand and a close of 6.2541 on Wednesday.

Albayrak, Erdogan’s son-in-law, had previously promised “realistic macro targets” and “right action plans”.

“We will see a gradual growth increase from now on. Our main goal is to establish 5 percent growth from 2021 onwards,” Albayrak said at the presentation in Istanbul. He did not take questions.

“We will realise the necessary policies and measures to ensure economic hardships are overcome,” he said. “We are aware of the economy’s strong and weak points.”


The central bank hiked interest rates by 6.25 percentage points last week in a bid to tame double-digit inflation and put a floor under the lira, which has also been pressured by a row between Ankara and Washington over the trial of a U.S. evangelical pastor.

The currency had made moderate gains since the central bank’s action.

The finance minister’s economic programme forecast that inflation would rise to 20.8 percent this year before dropping to 15.9 percent in 2019 and 9.8 percent in 2020.

Investors want to see signs the government is moving away from a decade and a half of growth driven by credit and big infrastructure projects.

Turkey’s unemployment rate was expected to rise to 11.3 percent in 2018 and 12.1 percent in 2019 before falling to 11.9 in 2020, the presentation showed.

Albayrak said Turkey will prioritise investments in pharmaceuticals, energy, and petrochemicals to reduce its current account deficit, which was seen falling to 2.6 percent of gross domestic product by 2021 from 4.7 percent seen in 2018.

He also said Turkey would suspend all investment projects for which the tender process has not been finalised. He also said Turkey would revise its social insurance schemes and restructure its incentive scheme for exports.

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