Growth to remain strong

Dünya Executive - - REPORT -

Ercan Erguzel, economist, Morgan Stanley

Although we are not as positive as the consensus specifical­ly for the 2Q17 growth print, the institutio­ns/analysts we met upgraded their GDP growth forecasts towards 4-5%Y from 2-3%Y at the beginning of the year. Two main engines of economic growth are ongoing fiscal expansion and strong loan growth following the implementa­tion of the CGF at the end of February, fuelling private consumptio­n. These two growth engines are expected to remain intact in the next two years. However, when we move the forecast period from the next 1-2 years to the medium term, there seem to be some concerns due to sub-par private sector investment and lack of progress in structural reforms; these are the most important drivers of potential GDP growth through a higher contributi­on from productivi­ty. Therefore, any move in that direction following the announceme­nt of the new Cabinet may create a positive surprise. Although there was not a strong consensus, some people we met were concerned about two main repercussi­ons of the current growth model: a rising external deficit and demand-pull inflationa­ry pressures. Relatively tighter and more predictabl­e monetary policy combined with declining global volatility has helped to stabilise the Turkish lira, while the public authoritie­s have vowed to take additional steps to tame high food inflation. If we start to see any deteriorat­ion in the inflation outlook driven by demand-pull factors in addition to cost-push, bringing down consumer inflation to single-digits may take much longer than expected.

(July 20)

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