Turkish economic growth to fall short of gov’t forecast

ANKARA — Turkey’s economic growth this year will fall slightly short of the government’s forecast, a Reuters poll found, suggesting not all investor concerns following an April referendum giving President Recep Tayyip Erdogan sweeping new powers have eased.

While growth forecasts are better than they were three months ago — alongside a rising stock market and a more stable lira — projected growth rates are still well below half the expected inflation rate, suggesting not all is well.

On April 16, Turks voted by a thin margin to back constitutional changes to create an executive presidential system, in which Erdogan could remain in power until at least 2029.

The government has said the changes would boost growth as they will make it easier to push through reforms to labour and tax laws, but investors have voiced concern about Erdogan’s further consolidation of power and his grip on monetary policy.

“I think the drivers of growth - including rapid credit growth, loose fiscal policy and a rebound in the tourism sector — are unlikely to last too long,” said William Jackson of London-based consultancy Capital Economics.

“I suspect that GDP growth will probably peak in Q3, then slow sharply,” Jackson added. 

Growth in 2017 is estimated at 3.9 per cent, according to the poll of 41 economists, slightly below the government’s official forecast of 4.4 per cent, but well above the previous Reuters poll in April which predicted 2.6 per cent.

For 2018, growth is seen at 3.3 per cent, the poll showed.

Widespread purges since last July’s coup attempt, in which some 150,000 people have been sacked or suspended from jobs in the civil service and private sector and more than 50,000 have been detained, have also alarmed rights groups and Turkey’s Western allies.

In the aftermath of the abortive putsch, the lira hit a series of record lows, and the economy saw a 1.3 per cent contraction, with concerns about the political situation also pushing up consumer prices. Both the lira and inflation have since shown signs of recovery.

After hitting a eight-and-a-half-year high just below 12 per cent in April, Turkish inflation cooled in May and June, on a drop in food prices to a little under 11 per cent increase in annual consumer prices.

The poll predicted inflation would remain high at 10 per cent by end-year, not far below the current level. The lira has firmed somewhat from a record low of 3.94 against the US dollar in January.