EU increases Turkey’s growth forecast

The EU has raised its forecast for Turkey’s economic growth from 2.8 percent to 3 percent for this year and from 3.2 percent to 3.3 percent for 2018, according to the 2017 Spring Economic Forecasts’ Report published by the EU Commission.

Moreover, the report said that the strong loss in momentum that the Turkish economy experienced in 2016 is expected to reverse only gradually as uncertainty recedes during the year. Supported first by net trade, momentum is set to improve toward the end of the year as domestic demand benefits from improvements made to monetary conditions and improved confidence. It was also noted that the increase in employment in Turkey is expected to increase even further in 2018 and that Turkish banks continue to have relatively sound headline-risk metrics, a positive factor that should support domestic investment in the coming period.

The report also underscored that the remaining fiscal space could possibly continue to be utilized in the case of lower-than-expected developments in private, domestic demand. Net foreign trade might gain more impetus from the depreciation of the lira and tourists could return to the country more quickly than currently foreseen under a more benign geopolitical environment.

Moreover, it was also stated that reduced domestic uncertainty and the further easing of financial conditions could have a higher-than-anticipated spillover effect on confidence and demand for growth. The young and growing population could also be absorbed more quickly than currently expected with a greater increase in the participation rate than in the current scenario. However, the report also said that high inflation and high unemployment rates could be the risks on the downside. According to the report, the Turkish economy is expected to grow 3 percent in 2017 and 3.3 percent in 2018. Moreover, the unemployment rate is expected to be 13.6 percent in 2017 and 14.1 in 2018. As for the Consumer Price Index (CPI), it is expected to be 11.1 percent in 2017 and 8.6 percent in 2018.