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Abu Dhabi, UAESaturday 20 October 2018

Turkey slashes growth forecast and sees jobless rates rising

Currency crisis that has hammered lira among reasons for downbeat outlook, with inflation set to rocket

Berat Albayrak, Turkey's Finance Minister, has cut the country's economic growth outlook. AP
Berat Albayrak, Turkey's Finance Minister, has cut the country's economic growth outlook. AP

Turkey sharply cut its growth forecasts for this year and next in its new medium-term economic programme on Thursday, amid a deep currency crisis that has seen the lira fall by 40 per cent this year.

Data in Finance Minister Berat Albayrak's presentation showed growth was expected to be 3.8 per cent in 2018 and 2.3 per cent in 2019, both revised down from previous forecasts of 5.5 per cent, Reuters said.

Inflation, meanwhile, would balloon to 20.8 per cent at the end of 2018, moderating only slightly to 15.9 per cent in 2019, figures showed, according to Agence France-Presse.

Sources had said Turkey would cut its economic growth estimates, although they said there was debate among top government officials about the extent of the revisions.

That discussion underscored the delicate balance between President Recep Tayyip Erdogan's long-standing emphasis on credit-fuelled economic expansion and investors' calls for greater austerity.

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Mr Albayrak, Erdogan's son-in-law, had previously promised "realistic macro targets" and "right action plans", Reuters reported.

The lira traded beyond 6.27 after the programme was announced, from around 6.20 beforehand and a close of 6.25 on Wednesday.

The currency has been hit by concerns over Mr Erdogan's influence over monetary policy. A diplomatic row between Ankara and Washington over the trial of a US evangelical pastor in Turkey has added to pressure on the lira.

The central bank hiked interest rates by 6.25 percentage points last week in a bid to tame double-digit inflation and put a floor under the lira. The currency had made only moderate gains since then.

Investors want to see signs the government is moving away from a decade and a half of growth driven by credit and big infrastructure projects.

Turkey's unemployment rate is expected to rise to 12.1 per cent in 2019 from an expected 11.3 percent in 2018, Mr Albayrak said.

He also said the government expects savings of $9.6 billion in 2019 and that there would be no further restructuring in tax and other government receivables.

Turkey also said it will restructure "current credit debt" as part of its new economic programme.

The Real Estate Bank of Turkey will also be restructured, he said.