A recent European Bank of Reconstruction and Development (EBRD) report indicates the banking sector and Turkey's fiscal balance have maintained their stability. According to the report, published as part of the annual conference organized in the EBRD's center in London, Turkey is expected to grow 3.2 percent this year and 3.4 percent in 2017.
The report highlights that some downward risks such as the increase in local and regional uncertainties, a drastic decrease in capital flows due to increasing volatility in global fiscal markets and a rapid increase in oil prices can emerge within the next period.
Stressing that despite all of these risks, the banking sector and fiscal balances have maintained their stability, the percentage of problematic loans are low and public debts were holding at 35 percent of the gross domestic product (GDP) as of the end of the previous year. Moreover, the report said Turkey grew 4 percent last year due to the effects of stronger than expected domestic consumption and refugees.
According to the report, the Turkish lira was pressured last year due to the United States' monetary tightening policy, weakening the perspective of investors regarding emerging markets and increasing uncertainties during the election period, so the lira weakened 25 percent against the dollar. The report foresees that the low oil prices and 30 percent increase in the minimum wage will support economic growth in 2016. On the other hand, funding costs will preserve their high levels in 2016 and 2017 due to the inflation pressures, monetary tightening of the U.S. Federal Reserve and increasing volatility in emerging markets.
Highlighting the positive contribution of domestic demand to growth, the report claims that this effect, however, can be pressured due to reducing tourism incomes in the aftermath of the recent terrorist attacks, Russia's sanctions, low growth in Europe and the ongoing tensions in the Middle East.
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