Turkish economy on growth path despite risks: Experts

ANKARA-Anadolu Agency

Turkey's economy has entered a growth path but must be wary of risks along the way, international economists said.

Piotr Matys, a strategist at Dutch-based Rabobank, stressed that the Turkish economy is recovering from a recession, but raised the question of whether the country's growth will prove sustainable over the long term.

Stating that the economic model based mainly on private consumption fueled by credit and construction has run its course, Matys said:

"Turkey must – and certainly is capable of – reinventing itself by focusing on high value-added goods that would allow it to integrate closely with global value chains."

Matys highlighted that foreign investors expect the government to implement structural reforms to reach its growth target for next year.

"Achieving the official 5 percent target by injecting a substantial dose of new credit will not impress foreign investors, who expect comprehensive structural reforms that would prevent the current account deficit from widening again when domestic demand increases," he said.

The Turkish Statistical Institute (TÜİK) announced on Dec. 2 that in the third quarter of 2019 the country's economy expanded 0.9 percent year-on-year.

In the first two quarters of 2019 the economy contracted 2.3 percent and 1.6 percent, respectively, on an annual basis.

In 2018 the economy posted annual growth rate of 2.8 percent, narrowing in the last quarter.

The country's new economic program for 2020-2022, unveiled on Sept. 30, targets 5 percent annual growth rate for each of the next three years. 

Agriculture, caution on growth

Matys also recommended that the country unleash the potential of its agriculture sector to bring down “persistently” high food prices while making it an important pillar of the economy.

"Russia is a great example, as the agriculture sector is booming after the government offered various incentives to farmers and food production increased substantially," he said.

Nigel Rendell, London-based Europe, Middle East and Africa analyst for Medley Global Advisors, projected Turkey's economy will grow 1 percent on a quarterly basis in October-December.

"The annual figure will be artificially high – around 4 percent year-on-year – given the comparison will be with the depths of the lira-induced recession from a year ago," he added.

Average GDP growth for 2019 as a whole is expected to be positive and close to the government forecast of 0.5 percent, he said.

Touching on the government's targets for next year, Rendell said: "The economy will strengthen next year, given the interest rate declines and the state banks' willingness to promote lending, but we expect economic growth to be around 3.5 percent."

If the economy grows too quickly, imports tend to rise sharply, leading to a growing current account deficit which risks leading to a weaker lira, he warned.

High interest rates and the stable currency makes Turkey an attractive proposition for foreign investors at the moment, he said.

The policy rate of the Central Bank of Turkey currently stands at 14 percent.

Since the beginning of this year, the bank has cut the rate 1,000 basis points.

"Any moves to make aggressive cuts in interest rates ahead of this could unnerve investors," cautioned Rendell.