The Turkish economy will close this year with positive growth figures, Treasury and Finance Minister Berat Albayrak said yesterday, in reference to improvement in macroeconomic trends and rising economic confidence.
During a meeting with businesspeople titled "Change is Beginning," held in the eastern Anatolian province of Malatya, Albayrak underscored the falling inflation, interest rates and risk premiums as well as increasing economic confidence and modest improvement in industrial production.
The minister’s estimates have recently been corroborated by the latest report of the International Monetary Fund (IMF). The report said last month that the Turkish economy may see a growth of 0.25%, reversing previous forecasts of a 2.5% contraction.
Following the release of the second quarter data, experts also predicted that the economy will register positive growth in the third quarter. Turkey's economy shrank by 1.5% in the April-June period, compared to the same period last year. In the first quarter, the revised data of the Turkish Statistical Institute (TurkStat) revealed that the economy shrank by 2.4%.
In reference to the positive trends in the Turkish economy, Albayrak recalled, “The $5.1 billion surplus in the current account was a record in the history of the Turkish Republic.” The drastic fall in the current account surplus came as a result of falling imports and a set of measures by the government, alleviating the burden of external financing.
The annualized deficit climbed to $57.9 billion in May 2018 before it kicked off a dramatic decline along with the rebalancing period in the Turkish economy that started after Albayrak announced the new economic program (NEP) in September last year. Measures taken within this scope led to narrowing in the foreign trade deficit, while a high increase was observed in the rate of exports meeting imports.
The new economic program unveiled in September expects a current account surplus-to-GDP ratio of 0.1% for 2019. It forecasts the current account to post a deficit of 1.2% next year and 0.8% in 2021 before reaching 0% in 2022.
In 2010 and 2011, when the Turkish economy was seeing high growth, the annualized current account deficit had increased gradually and reached its historic peak in October 2011 with $76.1 billion. It went on to fall below $50 billion in November 2012 with the measures taken by the economic administration.
Meanwhile, the economic confidence index increased by 14.7 points in October compared to the same month of the previous year, reaching 89.8 – the highest in the last 15 months, according to the TurkStat data released on Wednesday.
Albayrak emphasized the significance of protecting economic gains and ensuring a sustainable growth trend in the rebalancing period. He recalled that the capacity utilization rates are higher in the third quarter compared to the previous quarter. “The contracting automobile and home appliance sectors also saw an increase of 100.7% and 7.2% in September,” he said, adding that, “The Purchasing Manufacturer Index (PMI) edged over 50 points in September after 17 months.”
During his meeting with the businesspeople, Albayrak also announced an employment-oriented financing package to be provided by three public lenders, namely Ziraat Bank, Halkbank and Vakıfbank.
The banks have introduced four new instruments to facilitate long-term loans for companies that have the potential to create additional employment. The manufacturing enterprises that pledge additional jobs will be able to benefit from a loan package of TL 100,000 to TL 200,000.
Albayrak confirmed that a new era of financial support for the real economy has started as the banks have decreased interest rates on commercial loans from 13% and 15.5% to 11% and 13.5%, respectively.
CENTRAL BANK SLASHES YEAR-END INFLATION FORECAST
Turkey’s central bank yesterday went on to lower its inflation forecast for the end of this year to 12% in its latest quarterly inflation report, down from 13.9% in the previous report, attributing it to changing food inflation expectations and improvement in the underlying trend.
Unveiling the last quarterly inflation report of the year in Istanbul, Murat Uysal, the governor of the Central Bank of the Republic of Turkey (CBRT), said significant improvement in the underlying trend of inflation and the downward revisions to import prices and food prices had a positive impact on the year-end inflation forecast compared to the previous reporting period.
However, Uysal noted, the moderate recovery in the output gap and the tax hikes for alcoholic beverages and tobacco product pushed the year-end inflation forecast upward, putting it at 12%.
He added that the projections for next year and 2021 were left unchanged at 8.2% and 5.4%, respectively. The governor stressed the focus of eventually bringing down inflation to below 5% over the medium term.
Annual inflation dropped to 9.26% in September, reaching single digits for the first time since July 2017, when consumer prices came in at 9.79%. It went down 5.75 percentage points from 15.1% in August.
After topping 25% in September last year, inflation has been gradually falling, from 20.3% this January to 9.26% in September.
In the face of rising inflation, the CBRT had hiked its benchmark policy rate – the one-week repo auction rate – to 24% in September 2018, from 17.75% at the time. However, the disinflation trend has paved the way for the central bank to kick off an easing cycle in its monetary policy and slash the one-week repo auction rate by 1,000 basis points since July.
In its July meeting, the bank cut the one-week repo auction rate by 425 basis points, before slashing the rate further by 325 basis points in September and 250 basis points last week to 14%, taking advantage of slower inflation and a steadier lira.
At the point reached, Uysal acknowledged that the bank has used a significant part available for a loose monetary policy, but did not rule out further easing in the near term.
Uysal said the latest rate cut was due not only to base effects but also to improvements in inflation expectations and pricing behavior. He said the bank’s future policy steps would depend on further developments in inflation.
According to the governor, the disinflation process continues, with base effects, tight monetary policy and domestic demand also contributing to a fall in inflation, while the monetary policy implementation will ensure the forecast is achieved.
Under the new economic program released last month, Turkey’s inflation target for this year is 12%, followed by 8.5% in 2020, 6% in 2021 and 4.9% in 2022.