Recent indicators show the economy screeching to a halt as the effects of the currency crisis continue to reverberate. In October, consumer and business confidence moved further into pessimistic territory and marked fresh multi-year lows, although the pace of the decline slowed. Moreover, automotive sales collapsed in Q3, while industrial production and retail sales growth slowed markedly in August. More positively, the lira has gained substantial ground in recent weeks, which should lessen corporates’ external debt burdens somewhat. The appreciation has come on the back of higher interest rates, the government’s commitment to a tighter fiscal stance in the New Economic Plan, and the release of a U.S. pastor in mid-October, which soothed geopolitical tensions with the U.S. Moreover, Turkey was able to raise USD 2 billion in international bond markets recently in an oversubscribed sale, marking an early sign of a gradual return of confidence in the economy.
Turkey Economic Growth
The economy will perform poorly next year, weighed down by restrictive financial conditions constraining private consumption and fixed investment, and the government’s tighter fiscal stance. However, the external sector should provide some support. Further exchange rate volatility and the possibility of renewed geopolitical tensions pose significant downside risks. FocusEconomics panelists expect growth of 0.5% in 2019, down 0.5 percentage points from last month’s forecast, and 3.4% in 2020.
