ANKARA: Turkey’s economy is expected to emerge this year from a prolonged slump and grow as much as 4% annually, propelled by resurgent consumer demand as the coronavirus pandemic ebbs, according to government officials, top businesses and analysts.
The $760 billion economy is seen to have narrowly avoided a contraction in 2020 due to a burst of cheap lending in the first half of the year that cushioned the fallout from the coronavirus, which has surged again in recent months.
Virus-related curfews and restaurant closures, along with high interest rates meant to tackle double-digit inflation, will limit growth in coming months, they said.
Yet compared with the sluggish 2020, the economy should grow this year on the back of retail sales, manufacturing and a jump in foreign investment in Turkish assets since November, when the government named a new central bank chief and finance minister.
Haluk Burumcekci, of Istanbul-based Burumceki Consulting, said the leadership overhaul and promise of economic reforms created a window to battle inflation after years of price rises well above a 5% target.
“Even with low credit growth, it will not be difficult for the economy to grow 4% this year,” he said. “We made a very good start to this year adopting steps to create a market-friendly environment.”
Turkey’s economy was accustomed to regular 5% annual growth until a currency crisis in mid-2018. Since then, it has averaged 0.5% on a roller-coaster of recession, recovery and pandemic.
An economic policymaker told Reuters a big trade imbalance and high inflation remained risks this year. A balance needed to be struck too in the expansion of credit, he added, after loan growth soared 50% last year in an aggressive state-backed push.
“Economic growth may be around 3-4% in 2021 due to the base effect,” of comparing with last year’s slump, said the official, who requested anonymity. “Risk management of the banking system must also be monitored carefully.”
Economic prospects will depend on how successful the new Central Bank Governor Naci Agbal is in lowering inflation from nearly 15%, where it is expected to stay for the next few months before only gradually dipping towards year-end.
The bank has hiked its key rate by 6.75 percentage points to 17% since November, putting a brake on the economic rebound.
Goldman Sachs analysts are somewhat bullish on the lira, which is rising after a 20% drop last year. But they warned investors to pull back if the bank cuts rates too quickly and adopts “an unsustainable pro-growth bias once again”.
Investors have questioned Turkey’s monetary independence, especially since 2018, when inflation soared above 25%. President Tayyip Erdogan has long urged lower rates and ousted past bank chiefs over policy disagreements - though in November he pledged a new market-friendly era.
“It will take time to build trust in the economy,” said Simone Kaslowski, chairman of TUSIAD, Turkey’s largest business group, which forecasts 4% annual growth in 2021.
“We have a long way to go when it comes to the battle against inflation ... and we will go through a period where we will have to waive economic growth,” he said.
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