Turkish economy expected to contract in 2020 as coronavirus hits economies: report

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People walk in a long corridor lined by Turkish flags in a historic bazaar in the central Sultanahmet district of Istanbul on August 11, 2018. / AFP PHOTO / Yasin AKGUL

Turkey’s economy is expected to contract this year for the first time in over a decade as the coronavirus pandemic slashes output through mid-year, and it’s unlikely to grow again until 2021, according to a Reuters poll.

The median forecast of some 40 economists was for a contraction of 1.4 percent in 2020, with drops in the second and third quarters of 8.6 percent and 5.3 percent, respectively.

Before the coronavirus outbreak, the government expected the economy to expand 5 percent this year after rebounding from a recession last year.

The government has not updated its gross domestic product forecast since the country recorded its first case of COVID-19 in mid-March. The virus has since spread, putting Turkey seventh here globally in confirmed coronavirus cases.

The economy is expected to grow again next year by 3.7 percent, according to the poll’s median. For the first quarter of this year, the official report due on May 29 is forecast to show growth of 4.4 percent.

Ankara has shut schools and some businesses, closed borders and adopted weekend lockdowns. But it has stopped short of imposing a full stay-at-home order in an effort to support some economic activity.

Turkey’s economy last contracted on an annual basis in 2009, by 4.7 percent. From 2010 to 2018, its average growth rate was more than 5 percent thanks to a construction boom driven by cheap capital following the global financial crisis.

A currency crisis in 2018 was set off by concerns over central bank independence and tension between Ankara and Washington. That led to three straight quarters of economic contraction and a modest annual growth rate of 0.9 percent last year.

Since July, the central bank has cut rates to 9.75 percent from 24 percent to boost growth and reflect declining inflation.

In the poll, economists predicted the central bank would continue cutting to reach 8.00 percent by the end of June as it ramps up its response to the outbreak, according to the median response.

Annual inflation, which has hovered around 12 percent the last few months, is expected to decline to 8.3 percent by the end of the year before rising to 8.9 percent by the end of 2021, the poll showed based on the median.

The current account balance, which recorded a rare surplus last year as the economy slowed, has since returned to a deficit. The deficit is expected to stand at 1.2 percent of GDP this year and 2.6 percent next year, according to the poll.

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