EBRD forecasts gradual recovery in Turkish economy

SARAJEVO, Bosnia and Herzegovina

The European Bank for Reconstruction and Development (EBRD) forecasts gradual recovery in the Turkish economy by starting the next year.

The Turkish economy, which grow by 2.6% in 2018, is expected to narrow 1% in 2019 and see a gradual recovery with a 2.5% growth in 2020, the bank said in a report.

The report, titled Regional Economic Prospects in the EBRD Regions, was released during an annual meeting of the bank on Wednesday.

It underlined: "While leading indicators suggest that the slowdown may have bottomed out in the first quarter of 2019, this may in part be driven by temporary counter-cyclical measures introduced in advance of the municipal elections in March 2019."

The Turkish economy grew by 7.4% in 2017 and 2.9% in 2016.

Mentioning that Turkey had three recession periods in 1999-2000, 2001-2002 and 2009, the report noted: "All of these lasted for one year and recoveries took five quarters."

The report said that high-interest rates will continue to reduce consumption and investment, but the weaker Turkish lira will continue to back net exports of the country.

The bank expected that the inflation rate, which hit 15-year-high with 25% in last October, will start to reduce in the second half of the current year.

The EBRD report also underscored that Turkish lira recovered some losses against the U.S. dollar and stabilized after a high-volatility-period in 2018, but it remained vulnerable to fragile investor sentiment.

Last year, the average U.S. dollar/Turkish lira exchange rate was 4.82, versus 3.65 in 2017, while one dollar traded for 5.46 Turkish liras on average in the first four months of 2019.

Average growth in countries where the EBRD operates is forecasted at 2.3% in 2019 and 2.6% in 2020, according to the report.

The bank's previous forecast was 2.6% for 2019 in its region.

"Having tightened throughout 2018, financing conditions faced by the EBRD regions’ economies started easing from January 2019, with interest rates remaining low in historical perspective," said the report.

Among the EBRD countries, the highest forecast was for Turkmenistan -- 6.3% in 2019 and 6% in 2020.

The EBRD operates in nearly 40 countries from Europe to the Caucasus.

Established in 1991 to facilitate reconstruction in Central and Eastern Europe after the Cold War, the EBRD has since made investments worth €133 billion ($149 billion) in around 5,200 projects so far.