Turkish economic growth likely to decelerate next year, inflation to weigh on private consumption

Turkey’s economic growth unexpectedly came in negative in the third quarter, contracting 1.8 percent year-on-year, as compared with the growth of 3.1 percent seen in the prior quarter. The contraction was mostly due to decline in agricultural sector, industrial production and private consumption, which fell 7.7 percent, 1.4 percent and 3.2 percent, respectively. The economy is expected to grow 2.7 percent year-on-year this year, according to a Danske Bank research report.

“We expect the GDP to grow 2.3 percent y/y in 2017 and 1.8 percent y/y in 2018, as accelerating inflation should weigh on private consumption and rates remain high, depressing fixed investments growth”, added Danske Bank.

The rating agency Fitch is the only major rating agency that is keeping Turkey at investment grade and it will be reviewing its assessment of Turkey in the beginning of 2017. The assessment would be a significant event for Turkish economic prospects next year.

Turkey’s current account balance continues to be in negative territory, recording a USD 1.7 billion deficit in October. Moreover, increase oil price and lack of solid recovery in exports are weighing on the current account balance in the long term.

“We expect the current account deficit to expand to around 5 percent of GDP in 2016, from 4.5 percent in 2015”, stated Danske Bank.