Fiscal stimulus will continue

Philippe Dauba, Pantanacce, senior emerging-market economist, Standard Chartered

Dünya Executive - - REPORT -

Developmen­ts since the referendum, namely the extension of the state of emergency, are likely to weigh further on the recovery in inbound tourism. Growth in government consumptio­n was a key source of support for economic activity in 2016 – it grew 7.3 percent, partly offsetting slower private consumptio­n at 2.3 percent. To offset slower private consumptio­n, we expect the government to continue to provide fiscal stimulus. The government posted a fiscal surplus of 4.6 billion lira in the first two months of 2017; this was down 30 percent year-on-year due to a 20 percent increase in government spending. We expect a fiscal deficit of 3.1 percent of gross domestic product in 2017 as a result of the fiscal stimulus.

The authoritie­s had positioned the presidenti­al referendum as a pre-requisite for economic reforms, saying it would ensure that domestic stability prevails. It remains to be seen whether the policy focus will turn swiftly to structural reform implementa­tion. The lower probabilit­y of early elections – they are likely to be held in 2019 as scheduled – could create more room for policy focus on structural reforms. We expect the Central Bank to keep liquidity conditions tight and see potential for further rate hikes, given our expectatio­n of two more U.S. Federal Reserve hikes this year.

(April 19)

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