Recent data on the Turkish economy pointed out a period of slowdown, which began in the last quarter of 2018. However, the second half of this year is expected to stage a strong recovery in economic activity. The measures taken by the economy administrations and the proactive policy of the Central Bank of the Republic of Turkey (CBRT) will pave the way for a positive outlook for the Turkish economy following the municipal elections scheduled for March 31. After the local elections, a prolonged period of no elections awaits Turkey. Efficient administration of this term will keep risks at a minimum level, according to economists.
The perception that "the worst is behind us" regarding Turkish lira-denominated assets is likely to spread in the markets. The economists also predicted a further fall in inflation and contraction in the current account deficit to $15 billion, which will be easier to finance.
The implementation of necessary structural reforms for a positive scenario, the relations with the U.S., the steps of U.S. President Donald Trump and the slowdown in the global economy would be the significant risks this year.
Professor Burak Arzova of Marmara University's School of Business Administration said the trade war the U.S. has waged against the rest of the world, the troubled Brexit period, the slowdown in China's growth and the downward trend in Germany's manufacturing industry would be the major risks in 2019.
Arzova said that these risks may lead to a decrease in global growth estimates and in that case Turkey would inevitably be affected. While on the demand side in Turkey portrays a downward trend, a slowing export performance might affect real economic production, he added.
With the falling inflation, the central bank might consider cutting interest rates in the second half of the year, which would present a very important opportunity for the country, Arzova said.
The economy administration will take steps to utilize a long no-election period after March, he added. Turkey must immediately launch structural reforms in order to seize this opportunity in the most efficient manner. The reforms include, he suggested, a revision of the education system and diversification of capital market instruments.
"The current account deficit is likely to stand around $14 to $15 billion," said Arzova, adding that it is not likely Turkey would encounter any problems to finance this amount of deficit.
2019 growth depends on tourism and foreign trade
NoorCM Securities Domestic Markets Sales Manager and economist Mert Yılmaz said in 2019 that the developments related to the world economy rather than domestic developments have come to the fore as a risk factor, adding that concerns about U.S. President Donald Trump's discourse and likely future steps will also keep the agenda busy.
Yılmaz said that the fact that Turkish lira assets are relatively inexpensive and that the worst is behind in terms of indicators could bring important opportunities for Turkey. He suggested that in order to be able to evaluate this opportunity, the fight against inflation should not be compromised, the budget discipline should be adhered to, the expansionary policies through state banks should be terminated after the elections and efficiency-based studies should be conducted.
Noting that the slowdown in global economic activity was the biggest risk, Yılmaz said Turkey has built its 2019 growth targets especially on tourism and foreign trade. He added that the economic slowdown in Europe, in particular, may inevitably result in Turkey not performing at the desired level in terms of exports and tourism revenues.
He projected that the 2019 inflation target of 15.9 percent, under the New Economy Program (NEP), will be achieved and even better performance may be expected.
Yılmaz added that the balance of payments would undoubtedly continue to improve. "However, we should not ignore the fact that this will not happen with structural solutions but with the slowdown in the country's growth," he said. "In this process, Turkey must transform the production model based on imports. Otherwise, it is inevitable to give a current account deficit at the end of each year we grow."
He said some populist practices have been implemented prior to the local elections on March 31, predicting there will be more concrete and rapid steps in regulations after the local elections.
Pointing to the election-free period of about four years, Yılmaz said, "Turkey is wary of elections. I think that with no new elections after March 31, an election-free process of four years could be used effectively."
Yılmaz said the relations between Turkey and the U.S. will be one of the most important determinants in terms of markets and exchange rates and that the Turkish lira would be perceived as more attractive for investors with the scenario of maintaining the current state of relations and even improving them.
He said that the developments in the world economy, especially the U.S. Federal Reserve, and in the developing countries by extension would undoubtedly affect Turkey positively or negatively. He stressed that despite all this, Turkey's commitment to achieving its targets in the NEP will be the most important anchor in terms of economic perception.