Turkey cuts its growth forecasts

Finance Minister provides investors with full account of the country’s economic prospects

TURKEY sharply cut its growth forecasts for this year and next yesterday, but disappointed investors who had hoped for deeper reductions that reflected the fragile state of the economy and a plan to help banks.

Turkey has seen its lira currency plunge by 40 percent this year on concerns over President Tayyip Erdogan’s influence over monetary policy, with the turbulence jolting financial markets around the world.

Finance Minister Berat Albayrak hoped to use his medium-term economic plan to rebuild confidence by giving investors a full account of the country’s economic prospects.

He said growth would be 3.8 percent this year and 2.3 percent in 2019, both revised down from forecasts of 5.5 percent.

Sources, however, had said there was debate among top government officials about the extent of the revisions, underscoring the delicate balance between Erdogan’s long-standing emphasis on credit-fuelled economic expansion and investors’ calls for greater austerity.

“At the moment the programme is a disappointment. First, when you look at the growth forecast, current account deficit forecast, they are too ambitious,” said Guillaume Tresca, a senior EM strategist at Credit Agricole.

“We don’t have anything new, regarding a bad bank, regarding the treatment of (non-performing loans), regarding the foreign-exchange funding of the banking system or the foreign-exchange funding of the corporates. It is lacking details and it is lacking news.”

The lira weakened to 6.2962 to the dollar by 11.04am, from around 6.20 beforehand and a close of 6.2541 on Wednesday.

Albayrak, Erdogan’s son-in-law, had previously promised “realistic macro targets” and “right action plans”.

“We will see a gradual growth increase from now on. Our main goal is to establish 5 percent growth from 2021 onwards,” Albayrak said at the presentation in Istanbul. He did not take questions.

The central bank hiked interest rates by 6.25 percentage points last week in a bid to tame double-digit inflation and put a floor under the lira, which has also been pressured by a row between Ankara and Washington over the trial of a US evangelical pastor.

The currency had made moderate gains since the central bank’s action. – Reuters