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Turkey: 2019 growth forecasts increased to -1.5% - ABN AMRO

Nora Neuteboom, economist at ABN AMRO, expects Turkey to enter recession in 2019, with three quarters of negative growth.

Key Quotes

“The currency depreciation, in combination with high levels of inflation (21.6% yoy in November), will continue to slow consumption. We expect inflation to stay around 21% until mid-2019, before coming down swiftly to an estimated 12% in December 2019. Given the central bank’s most recent communication that it will maintain a tight stance for as long as necessary, we are assuming that the monetary policy rate will stay at 24%, at least until mid-2019. This should be sufficient to avoid a further depreciation of the currency and should create the conditions needed for a further improvement in market sentiment.”

“We expect some fiscal spending in the form of tax exemptions ahead of the local elections in late March, and this should be positive for growth. In the past few months, the government has taken various steps to prevent a sharp recession, including discounts on high-interest loans and regulatory forbearance to help banks deal with non-performing loans. Meanwhile the tight monetary stance will help prevent exchange rate volatility.”

“Last but not least, the relationship with the West has improved following the release of Pastor Brunson and the support Turkey has received from Western countries in the Khashoggi case. So while the economy is heading towards recession, we have upgraded our forecasts for 2019 to a contraction of -1.5% instead of -3%, on the back of the action taken by the government and the improved sentiment towards Turkey.”

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