Turkey's economy will catch up with its sustainable trend of growth next year, a Fitch Ratings' sovereign team director said on Monday.
Turkey's gross domestic product (GDP) looks to expand by 4.5% in 2021 after struggling this year due to the coronavirus pandemic, Douglas Winslow told Anadolu Agency (AA).
"In the first quarter of this year – before the coronavirus shock – economic growth had accelerated to above 6% ... we now anticipate a very sharp contraction in the second quarter, flatter growth in the third quarter and then recovery in the fourth quarter, as activities begin to normalize after the partial lockdown," he said.
Turkey’s economy grew 6% year-on-year in the fourth quarter and nearly 1% in 2019 as a whole, beating expectations, according to the Turkish Statistical Institute (TurkStat). The gross domestic product (GDP) data marked a sharp turnaround for the major emerging market economy, which has a track record in the last two decades of around 5% growth.
The country’s GDP at current prices surged by 14.9% year-on-year in 2019 to over TL 4.28 trillion.
If the virus is not effectively contained and partial lockdown conditions continue into the third quarter, however, significantly weaker growth would be expected, Winslow warned.
Turkey’s death toll from the coronavirus has risen to 574, while confirmed cases have now come to 27,069, Health Minister Fahrettin Koca said Sunday on Twitter.
In the latest steps, the country on Friday imposed a stay-at-home order for anyone under 20 years old and closed off the borders of 31 cities, including Istanbul, to vehicles. National flag carrier Turkish Airlines (THY) has canceled domestic flights through April 20.
Pointing to Fitch's updated growth forecast of 0.8% for Turkey despite a global contraction, Winslow said: "Part of the reason we still forecast slight GDP growth for 2020 as a whole is the strong momentum early in the year driven by a recovery in private bank lending, as well as the lower interest rate."
Turkey has ramped up measures to cushion the blow struck by the pandemic. President Recep Tayyip Erdoğan last month announced a TL 100 billion ($14.74 billion) relief package – the Economic Stability Shield – that slashes taxes for hard-hit sectors and has unlocked funding for workers, while the central bank has flooded the financial sector with cheap lira liquidity.
Winslow added that a sizable fiscal stimulus through the Economic Stability Shield package and further measures to prop up lending in state banks will provide some additional support to economic activity.
As Fitch has forecasted the eurozone to shrink by 4.2% this year, Turkey's net exports will have a negative impact on GDP growth this year, Winslow said. "This is likely to outweigh the benefits to the Turkish economy from lower imports and any potential relocation of export capacity," he added.
Winslow said the country's year-end inflation rate was revised down to 8.5% driven by "weaker GDP growth."
The country’s key inflation rate fell to 11.86% in March as expected, as a drop in global oil prices provided some relief after four consecutive months of rises, according to TurkStat.
In February, year-over-year consumer price inflation was at 12.37%, and it has remained lofty after a decline through much of last year.
Inflation was a pressing issue for the economy after it surged to a 15-year high of above 25% in October 2018, but this briefly touched single digits last fall, thanks largely to base effect and a tight monetary policy. It has since edged up, remaining around 12% in the past months.
Analysts have said the possibility of reaching single-digit inflation in the second half of the year continues when taking into consideration the central bank's guidance and the decline in oil prices could contribute to this.
The government's year-end inflation target is 8.5% for 2020 as laid out in the government's New Economic Program (NEP) announced last September.
Over the last decade, annual inflation saw its lowest level at 3.99% in March 2011, while this peaked at 25.24% in October 2018.
Fitch also projects a 100 basis point cut in Turkey's interest rates to 8.75% at the end of the year.
In an extraordinary meeting that took place on March 17, the Central Bank of the Republic of Turkey’s (CBRT) Monetary Policy Committee (MPC) cut its policy rate from 10.75 to 9.75.
The bank has slashed interest rates by 1,425 basis points since July 2019 on the back of improving inflation, for which it aims to drop to single digits this year. It predicted that inflation would fall to 8.2% by the end of the year.
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