International Financial Institutions Increase Turkey’s Growth Estimates
The international banking group Unicredit and the rating agency Standard & Poor’s (S&P) have both raised their growth forecasts for 2021 for Turkey.
Milan-based Unicredit said on Tuesday it had revised its gross domestic product (GDP) growth estimate to 9.7% from 7.5%, as it said the second-quarter expansion showed that the first half of the year had been stronger than initially expected.
S&P raised its growth forecast to 8.6%, up from its previous estimate of 6.1% in a new report released Monday night.
Turkey’s economy grew 21.7% year-on-year over the April-June period, rebounding from a sharp slowdown a year earlier driven by COVID-19 restrictions.
Unicredit also raised its growth forecast for next year to 5.5% from 3.5%. He cited a higher postponement from 2021 and an earlier and faster than expected start of the central bank’s easing cycle, which he said should be followed by an expansion in lending.
S&P left its forecasts for 2022 and 2023 unchanged, keeping them at 3.3% and 3.1% respectively.
The upgrades followed reviews earlier this month by several other financial institutions, including the Organization for Economic Co-operation and Development (OECD), Fitch Ratings, and Wall Street investment banks JPMorgan and Goldman. Sachs.
The OECD forecasts the economy to grow 8.4% this year, up from its earlier forecast of 5.7%. He predicts the economy will grow 3.1% next year.
Fitch said he expects growth to reach 9.2% from his previous estimate of 7.9%.
JPMorgan said it revised its growth projection for 2021 to 8.4% from 6.8%. He kept the 2022 forecast unchanged at 3.4%.
Goldman further raised its forecast for 2021 to 9.5% year-on-year from 7.5% previously.
The Central Bank of the Republic of Turkey (CBRT) unexpectedly lowered its policy rate by 100 basis points to 18% last week.
The key one-week rate is expected to remain broadly stable at 19%, where it had been since March, given the rise in inflation which accelerated to 19.25% in August, the highest level in more than two years.
Unicredit economists said they expected another rate cut of 300 basis points by the end of the year. “We don’t see much room for further easing in 2022, beyond a reduction measured at 14.5%,” they said.
S&P also said the central bank is expected to make further cuts by the end of the year. He revised his estimate of the end-of-year key rate to 17% from 16%. He sees the rate at 13% next year, down from 12%, before dropping to 9.9% and 9.75% in 2023 and 2024, respectively.
Unicredit said headline inflation is expected to slow from November due to disinflationary base effects.
“However, strong domestic demand and cost pressures associated with supply chain bottlenecks are likely to slow disinflation,” he noted.
The group expects annual inflation to peak above 20% in October, if energy price hikes are introduced next month, before falling back to 18.5% by year-end. and 14.4% in 2022.
S&P sees consumer price inflation drop to 15.2% by the end of the year, before falling back to 12.3% next year.
Turkey’s economy likely gained momentum in the third quarter, Unicredit said, with the service sector, particularly hospitality and leisure, benefiting the most from the reopening after the country lifted all measures related to the pandemic in July.
“In the future, growth should regain support from the credit impulse,” he noted.
S&P said emerging markets in Europe, the Middle East and Asia experienced rapid growth in the second quarter of the year thanks to stronger consumption and exports.
“As a result, we have revised upwards our growth forecasts for 2021 for Poland, Russia, South Africa and Turkey,” he said.
S&P recalled that while Poland and Russia had achieved pre-pandemic growth figures in the second quarter, Turkey’s real GDP was 9% above its pre-pandemic level.
He also pointed out that a better than expected tourist season had boosted Turkey’s foreign exchange earnings.