European Commission changes Turkey’s growth forecast

ANKARA

The European Commission has revised Turkey’s growth forecasts for 2016 and 2017 due to a decline in tourism income and the July 15 foiled coup, according to a new commission report released on Wednesday.

In its economic forecast for autumn 2016, the commission predicts Turkey will grow by 2.7 percent this year and by 3 percent the next year -- 0.8 and 0.7 percentage points lower than the previous forecasts released on May 3.

The commission added the country's growth would increase to 3.3 percent in 2018.

According to the report, the military coup attempt on July 15 resulted in economic disruptions and was also set to weigh in on economic growth in the short term.

The commission said the country's fiscal deficit would rise, but debt would remain stable.

"As a result of the current fiscal expansion, the downward trend in the general government debt ratio is flattening. However, at the level of 32–33 percent of GDP, public debt is sustainable," the report said.

A hike in minimum wages and currency depreciation will raise the country's average annual inflation to 8 percent next year, the commission said.

"Since the labor force is projected to outpace the number of available jobs, the annual unemployment rate is projected to remain on an upward trend and surpass 11 percent in 2017."

Also, the government had cut the growth forecast for this year to 3.2 percent from the previous target of 4.5 percent, according to its 2017-2019 medium-term program on Oct. 4. The growth estimate for 2017 was lowered to 4.4 percent from 5 percent.

The GDP growth stood at 3.1 percent year-a-year in the second quarter of this year versus 4.7 percent in the first three months of 2016.

- Economic trend risks

The European Union is expected to grow 1.8 percent this year, 0.2 percentage point less than the previous forecast, while the eurozone growth forecast was 1.7 percent -- 0.1 percentage point higher than the May forecast.

"Risks to the forecast have risen in recent months and are clearly tilted to the downside, including as a result of the U.K.'s ‘leave' vote, which has raised uncertainty and can be seen as an indicator of heightened policy risks in the current volatile political environment," the report said.

External risks, such as uncertain economic trends in China and the risk of aggravating geopolitical conflicts have also risen, the report added.

"European growth will hold up in 2017 against a more challenging backdrop than in the spring," Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs, said.

"The pace of job creation, boosted by recent reforms in many countries, decreasing public deficits in the euro area, a pick-up in investment and a more dynamic EU-intra trade are particularly encouraging.

“In these volatile and uncertain times, no effort must be spared to safeguard and strengthen this recovery – and ensure that all sections of society feel its benefits," Moscovici added.