ISTANBUL: Turkey’s economy will grow 4.0% in 2021, rebounding well from a slump brought on by the coronavirus pandemic, while inflation was seen falling to 11.6% due to tight monetary policy, according to a Reuters poll.
The economy contracted nearly 10% on an annual basis in the second quarter, when the initial COVID-19 wave hit, but swung back to growth in the third quarter and is expected to narrowly avoid a contraction for 2020 as a whole.
The Jan. 11-18 poll of economists saw growth of 0.6% last year based on the median, with some forecasting a contraction.
Despite the constraints on growth last year, inflation remained high and rose to near 15% in December. The central bank has hiked its key interest rate to 17% to cool prices, even as a second coronavirus wave has again slowed economic growth.
Turkey’s economy was expected to have grown 2.4% in the final quarter of 2020 and to expand 2.0% in the first quarter of 2021, according to the median.
It is expected to expand 4.0% in full-year 2021, according to the median estimate of 38 economists, after growth surges to 8.4% in the second quarter.
The finance minister and central bank governor - both appointed in early November - will focus on correcting macro imbalances rather than reverting to a policy of stimulating demand, Berna Bayazitoglu of Credit Suisse said.
Inflation was expected to decline to 11.6% by the end of 2021, compared with the central bank’s forecast of 9.4%, while the policy rate is expected to be lowered to 13% by the end of the year, the poll also showed.
The current account balance, which recorded a rare surplus in 2019 as the economy slowed, has since returned to a deficit. The deficit is expected to stand at 5.1% of GDP in 2020 and 2.5% this year, according to the poll.
“We expect economic activity to contract in 1H 2021 in sequential terms, the pressure on the balance of payments to ease and headline inflation to slow from May-June 2021,” she said in a note.
Bayazitoglu added the outlook depended on President Tayyip Erdogan’s tolerance for high rates and slow growth, given the economy has underperformed in recent years, chipping away at public support for his ruling political alliance.
In comments that rattled investors and sent the lira tumbling nearly 2%, Erdogan said on Friday high interest rates do not serve Turkey and he repeated his unorthodox view that the solution is to cut rates in order to lower inflation.
Comments
Comments are closed for this article.