The EBRD expects Turkey’s economy to start growing again in the second half of 2019, although a mild contraction is expected for the year as a whole.
Turkey exited recession at the beginning of 2019. There has been a significant improvement in macroeconomic stability and inflation has declined.
The risk of a banking crisis has eased with the stabilisation of the lira. The banking regulator recently introduced measures requiring banks to recognise problem assets that will increase the ratio of non-performing loans to around 6.3 per cent, but the sector needs a more wide-ranging response to deal with bad debt.
The EBRD’s latest Regional Economic Prospects report shows that recovery from the ongoing slowdown is likely to be gradual. The Bank predicts a contraction of around 0.2 per cent in 2019 and a return to a growth rate of 2.5 per cent in 2020.
The report says that significant uncertainty remains around this forecast due to the unpredictable domestic and geopolitical environment,
„Despite some stabilisation in recent months, the economic situation remains fragile. The response to Turkey’s recent incursion into Syria serves as a reminder that geopolitical tensions are never far from the surface,” the report said.
With reserves remaining low and external financing requirements still high, despite the current-account rebalancing, such tensions can have a significant impact on the economy.
Weakness in Turkey alongside a slowdown in Russia weigh down on economic growth in other countries where the EBRD invests.
Average growth of 2.4 per cent is seen in 2019 across all EBRD regions, compared with 3.4 per cent in 2018. The report sees a recovery to 2.9 per cent in 2020, which is a small downward revision from the forecast of 3.0 per cent in May and still clearly below 2017’s growth rate of 3.8 per cent.
The report sees economic growth moderating in most of central Europe, the Baltic states and south-eastern Europe, in line with weakening euro-area growth and headwinds to global trade.
It sees a strong correlation between growth in emerging Europe and trends observed globally and in advanced European economies. It notes that global growth forecasts are currently at their lowest level since the start of the global financial crisis.