Turkey’s economy will grow 5.5% annually this year, more than previously thought and close to a government forecast, according to a quarterly Reuters poll that also saw a tougher battle against double-digit inflation in coming years.
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Consumer price inflation will end the year at 15.5% and remain above 10% into 2024, according to the median of more than two dozen respondents. The central bank was expected to maintain tighter policy than expected in the previous poll.
The $720-billion economy grew 1.8% last year, one of only a few globally to avoid a contraction amid pandemic fallout. It rebounded strongly, by 7.0%, in the first quarter.
The median forecast of 35 economists, polled July 5-8, was for growth of 5.5% in 2021 and 3.5% in 2022, after the economy was expected to have surged 18.4% in the second quarter due to a so-called base effect from last year’s slump.
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In the previous poll three months ago, 2021 annual growth was seen at 4.8% based on the median.
“Domestic demand will likely rebound in Q3 as the pandemic-related restrictions are eased,” Berna Bayazitoglu, analyst at Credit Suisse, said in a note.
Exports will be boosted by “recovery among Turkey’s trading partners and the country’s delayed, albeit successful, vaccination program that will to some extent underpin a pickup in tourism revenues,” she said.
Turkey eased most coronavirus restrictions on July 1 and its vaccination programme has accelerated as it aims to attract tourism revenue.
The government forecasts 5.8% growth this year, though President Tayyip Erdogan said it would be higher, adding the central bank was determined to reduce inflation, which has been in double-digits for most of the last four years.
Record lira depreciation, high commodity prices and surging demand as the worst of the pandemic recedes have kept inflation high. Erdogan’s shock dismissal of a hawkish central bank chief in March hammered the currency, exacerbating price rises.
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Annual inflation touched a two-year high of 17.53% in June. The central bank sees it falling to 12.2% by year-end and has pledged tight policy until it hits the 5% target in 2023.
But economists say that is too optimistic given continued currency weakness and soaring producer prices.
The poll’s median inflation forecasts were for CPI of 15.5% at year-end, 12.0% at end-2022 and 11.0% at end-2023. The previous poll saw inflation dipping to 14.1% at year end and touching 9.8% by end-2023.
The central bank’s policy rate was expected to be lowered only gradually to 16.5% by the end of the year, from 19.0% now, and to 13.5% by the end of 2022, the poll also showed.
Erdogan’s repeated calls for lower rates and his sacking of three central bank chiefs in less than two years have undermined monetary credibility and encouraged an exodus of foreign investment.
“It is all about Erdogan now,” said Vladimir Demishev, London-based senior interest rates trader at Sova Capital.
“I don’t think the new governor will be able to cut rates until October now realistically so the question is, will he get sacked?”
In 2019 the current account balance recorded a rare surplus as the economy slowed after a currency crisis. But it has since returned to deficit and widened as exports and tourism revenues sagged due to the pandemic.
The deficit was expected to stand at 3.5% of GDP in 2021 and 2.5% next year, according to the poll.
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