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World Bank says Turkey may see slower GDP growth in second half of 2016

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JOHANNES ZUTT WORLD BANK

A statement made by World Bank suggests that due to slowing down of private investment and consumption recently, high frequency indicators suggest real GDP growth may fall into negative territory in Turkey in the third quarter adding this would bring full-year GDP growth in 2016 to 3.1 percent, compared to 3.5 percent envisaged earlier. Johannes Zutt, World Bank Country Director for Turkey has also said “The recent geopolitical developments have increased domestic uncertainty and weakened business confidence”.

According to Mr. Zutt “The bank projects GDP growth to rebound to 3.5 percent in 2017, as the removal of Russian sanctions enables net exports to improve. That said, private investment is likely to remain weak in 2017, though structural reforms aiming to rebuild business confidence and improve the investment climate should gradually help to raise private investment in the medium-term.

On the other hand Donato de Rosa, World Bank Lead Economist for Turkey commented that the current account deficit was likely to rise in 2016, as tourism revenues fell”. He went on to comment that foreign arrivals to Turkey had dropped sharply in 2016 on the back of Russian sanctions and security concerns, which curbed flows from Russia and Europe. De Rosa added “The rebound of global oil prices since early Q1 will show its negative impact with a lag, increasing the energy deficit in 2017”.

The note from the World Bank also underlined that volatility in financial markets had increased due to global and domestic factors.  “Since September, volatility has increased further, reflecting a weak global outlook, an expected interest rate increase in the United States, slower domestic growth, a widening external deficit, and an accommodative macro policy mix. Moreover, in late September, Moody`s cut Turkey`s credit rating from Baa3 to Ba1, one notch below investment grade. As a result, Turkey has seen portfolio outflows, and the Turkish Lira has come under pressure. More recently, the surprising outcome of the U.S. presidential election has pushed up global bond yields and put emerging market currencies under pressure. The depreciation of the Lira puts additional strain on the balance sheets of corporates, which have large open FX positions, weighing on confidence and investment outlook” stated Ayberk Yılmaz, Economist in Turkey office of the World Bank.

The note also underlined that the government planned to ease fiscal policy in the fourth quarter to support growth amid weakening private demand and the medium-term program anticipated a looser fiscal policy going forward, using fiscal space to support growth. General government budget deficit is projected to increase to 2.1 percent in 2016, before easing to 1.9 percent in 2017.

SOURCE: MEDIA

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