Istanbul, Oct 7 () - Standard & Poor's economists revised their GDP growth forecast for Turkey marginally upward to 3.1 percent from 3.0 percent for 2015, and lowered growth expectations for 2016 to 2.8 percent, down from 3.2 percent.
"The external environment for emerging economies worldwide has become more challenging over the past two months amid concerns about China's economic woes that triggered the global sell-off of emerging-market assets" said Standard & Poor's Senior Economist Tatiana Lysenko, in a report published on Wednesday "Gathering Headwinds Mean Lower Economic Growth For Turkey In 2016."
Turkey's direct export exposure to China is low. However, this bout of global risk aversion has aggravated pressures on the Turkish currency and bond markets from an anticipated tightening of monetary policy by the U.S. Federal Reserve, said in the report.
Moreover, political uncertainty and geopolitical concerns in the country are further dampening investor sentiment. The Turkish lira has lost 12 percent of its value from July to September alone, and 23 percent over the first nine months of 2015. Yields on 10-year lira-denominated government bonds have widened to 10.74 percent by end-September, from 7.86 percent at the beginning of the year.
At the same time, as an energy importer, Turkey has benefited from lower international energy prices, the S&P report said. "Combined with robust credit, this supported a relatively strong economic performance in the first half of 2015. GDP expanded by 2.5 percent year on year in the first quarter, and 3.8 percent year on year in the second quarter, while annualized quarterly GDP growth stood at 6.0 percent and 5.5 percent in the first and second quarters. One notable surprise was a surge in investment to 9.7 percent year on year in the second quarter, driven by private investment."
Pre-election spending boosted public consumption by 7 percent year on year, it said, adding that external and domestic headwinds are intensifying, however, suggesting that this strong performance is unlikely to continue into the second half of the year. Inflation in Turkey climbed to 7.95 percent year on year in September, as currency weakness offset the disinflationary impact of lower international energy prices, hitting real household income.
"Our baseline assumes that the central bank will gradually tighten monetary policy, raising its key rate to 8.5 percent by end-2016, but the risk has now increased for earlier or stronger rate hikes. Meanwhile, political uncertainty related to early elections in November as well as security concerns are weighing on the sentiment of foreign and domestic investors" it said.
"What's more, oil price weakness is curbing income and external demand from oil-producing trade partners (Russia and members of OPEC) that account for a considerable share of Turkish exports. Exports of goods and services were weak in the first half of the year, and we expect only a modest uptick in the second half, supported by European demand" said in the report.
"Taking all of these factors into account, we have marginally increased our GDP growth forecast for Turkey to 3.1 percent from our previous expectation of 3 percent for this year, and lowered our growth expectations for 2016 to 2.8 percent, from 3.2 percent previously" Lysenko added.