Turkey Sees Fast Economic Rebound in 2021 as Pandemic Dissipates

Turkey expects its economy to escape a contraction this year and perform a sharp recovery in 2021 as demand gradually gets back to normal following the coronavirus pandemic.

Against the backdrop of an improving growth outlook, consumer inflation will remain above the official estimates provided by the central bank in July, according to medium term targets announced by Treasury and Finance Minister Berat Albayrak on Tuesday.

Improving outlook is based on expectations that policy makers won’t have to shut down much of the $750 billion economy to mitigate the spread of the virus. It also shows a government-backed credit boom earlier this quarter and weak lira are fueling consumer inflation.

Below are some of the highlights from Albayrak’s New Economic Program presentation in Istanbul:

  • Gross domestic product growth is seen at 0.3% this year and 5.8% in 2021 in base case scenario; Growth in 2021 can be as low as 3.7% if pandemic lasts longer than expected
  • Inflation rate will drop to 10.5% at the end of 2020 and 8% the following year, compared to the central bank’s July forecasts of 8.9% and 6.2%
  • The ratio of the central government budget deficit to GDP is seen at 4.9% and 4.3% during the same period

The central bank delivered a surprise rate hike last week to stem a slide in the lira and counter inflationary risks after a series of backdoor tightening measures fell short of stabilizing the currency.

The lira, which is the worst-performing emerging markets currency in the second half, hit a new record low against the dollar on Tuesday as fighting between Armenia and Azerbaijan curbs investor appetite.

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