Turkish economy likely to expand 1 pct in 2017 and 2.1 pct in 2018, says Commerzbank

The Turkish economy has suffered a major impact from the disruption of the attempted military coup in July 2016. The economic growth contracted 2.7 percent sequentially in the third quarter, whereas the PMI dropped sharply. Manufacturing data has shown certain signs of stabilization since then. However, there was a rise in risks due to softening domestic demand before the coup. The slowdown was due to falling fixed investment as political and security concerns had increased over the preceding year.

Currently, the Turkish economy faces some uncertainties: Firstly, the political system is heading towards a major change to a presidential system. Secondly, Turkey is still under an emergency rule, which is expected to be extended again. Thirdly, the ‘purge’ of the parallel network is ongoing, which has resulted in a serious conflict with EU regarding the stat of democracy in Turkey, noted Commerzbank in a research report.

Also, the nation is increasingly involved in growing military operations in Iraq and Syria. Furthermore, major credit rating agencies have downgraded Turkey to junk in the third quarter, which has increased the CDS-spread and raised the cost of capital.

“We have lowered our 2017 GDP growth forecast from 1.9 percent to 1 percent, and our 2018 forecast from 2.8 percent to 2.1 percent following the publication of Q3 GDP data”, added Commerzbank.