The World Bank has lifted its 2023 and 2024 economic growth forecast for Türkiye, as the country emerges from catastrophic earthquakes that ripped its southeastern region two months ago, according to the lender’s Eastern Europe and Central Asia Economic Update report released Thursday.
The World Bank said it sees the Turkish economy growing by 3.2% this year, up from its earlier estimate of 2.7%. The bank’s growth expectation for next year was revised to 4.3%, from 4%, according to its report titled "Weak Growth, High Inflation, and a Cost-of-Living Crisis."
A robust growth in private consumption and exports served as a significant driver of regional growth last year and helped Türkiye's output expand by 5.6% in 2022, it said.
Noting that Türkiye is the region's second-largest economy, the lender said sizable minimum wage increases also boosted real household incomes, resulting in a surge in private consumption last year.
"Exports have benefited from a recovery in tourism and trade diversion following Russia's invasion of Ukraine. The composition of trade also shifted to include additional machinery, and food to Russia," the report said.
"In Türkiye, the slowdown in activity is likely to be contained as additional government support measures and earlier increases to minimum wages help households cope with inflation and lift domestic demand," it added.
The World Bank said the economic impact of the devastating earthquakes that struck Türkiye in February would depend on the fiscal response, adding the impact on the banking sector is expected to be more limited as the financial sector's exposure is modest.
Two quakes on Feb. 6, which also severely hit neighboring Syria, along with aftershocks, killed more than 50,000 people in Türkiye and flattened hundreds of thousands of buildings besides inflicting severe infrastructural damage.
The affected areas comprise nearly a tenth of the country’s output. The disaster caused about $34.2 billion in direct physical damage, or 4% of 2021 gross domestic product (GDP), the World Bank estimated in late February. It yet warned total reconstruction and recovery costs could be twice as high.
"The actual costs to meet the full range of recovery and reconstruction needs could be double the direct damages," it said on Thursday. "Investment is also expected to be stronger than previously envisioned, assuming that reconstruction efforts proceed rapidly."
Assuming a normalization in macroeconomic policies, the lender said growth is forecast to accelerate and increase to an average of 4.2% over 2024-25, underpinned by investment amid ongoing reconstruction efforts.
The institution noted that it had committed $1.8 billion to support Türkiye after the earthquakes.
The World Bank also said Türkiye plans to double energy subsidies to households in 2023, to about 3.5% of gross domestic product (GDP).
It noted that the Turkish government last year subsidized 80% of natural gas and 50% of the electricity used by households, as well as increasing minimum and public sector wages and offering tax benefits to households.
Meanwhile, the World Bank on Thursday lifted its 2023 economic growth forecast for eastern Europe and Central Asia to 1.4% from an earlier 0.1% prediction, citing improved outlooks for both Russia and Ukraine despite their ongoing war.
The regional forecast, released just days before the World Bank and International Monetary Fund (IMF) hold their annual spring meetings, has Ukraine's economy growing by 0.5% this year following a staggering contraction of 29.2% in 2022, the year Russia launched its invasion.
"While the economic toll suffered by Ukraine as a result of the invasion is enormous, the reopening of Ukraine’s Black Sea ports and resumption of grain trade, as well as substantial donor support, are helping support economic activity this year," the World Bank said in a statement.
Russia's economy shrank 2.1% last year, considerably less than the 3.5% contraction the World Bank forecast in January.
For 2023, the World Bank forecast Russia's economy to contract by 0.2%, compared to its previous forecast of a 3.3% contraction.
The World Bank's regional grouping includes Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Georgia, Kazakhstan, Kosovo, Kyrgyzstan, Moldova, Montenegro, North Macedonia, Poland, Romania, Russia, Serbia, Tajikistan, Türkiye, Turkmenistan, Ukraine and Uzbekistan.
