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1ST LEAD Analysts cautious as Turkish growth hits 7.4 per cent in 2017 By Ergin Hava, dpa

Europe
29.03.2018
By our dpa-correspondent and Europe Online    auf Facebook posten  Auf Twitter posten  
Istanbul (dpa) - Turkey‘s economy grew by 7.4 per cent overall in 2017, marking a significant rebound compared to the 3.2 percent the country posted in 2016, statistics office TurkStat said Thursday.

The fast recovery has raised concerns, however. Analysts noted the growth was accompanied by several structural risks, including double-digit inflation and a widening current-account deficit - the gap between money leaving Turkey and the amount coming in.

Turkish economy minister Nihat Zeybekci called Thursday‘s results a "splendid success" on his Twitter account, estimating the 2018 growth at 5.5 percent.

"Despite the euphoria, we cannot talk about a healthy and sustainable growth here," economist Ugur Gurses told dpa. "We are still far from addressing systematic risks in the economy."

Turkey‘s annual growth slowed sharply in 2016 following a failed coup attempt and several terrorist attacks. The growth rate was 6.1 per cent in 2015, according to TurkStat.

"Markets may have compensated for the losses in 2016 due to increased government investments and household demand," Gurses said. "These are only temporary measures and cannot help cool down the economy while we lack foreign financing and long-term investments."

Thursday‘s figures also revealed that gross domestic product at current prices fell to 851 billion dollars last year, down from 862.7 billion dollars in 2016.

This decline underlines how significant the depreciation in the lira is, Gurses argues, adding the currency lost nearly 20 per cent against the US dollar in 2017 compared to a year ago.

The Turkish lira was trading at 4.001 against the US dollar and 4.928 against the euro on Thursday.

The depreciating lira risks turning a growing corporate debt in foreign currency into a chronic problem for Turkey, economist Atilla Yesilada warned.

"While private sector debt denominated in euros and dollars increased significantly, the euro and the dollar more than doubled against the lira over the past decade," Yesilada told dpa, adding most companies now fail to repay debt on time.

The central bank will have to significantly raise the cost of funding to protect the lira and companies, according to Yesilada, though he said this is unlikely due to political pressure on the bank.

"With the elections in sight, the government won‘t want to see central bank rate hikes and therefore slow down the economy."

Turkey is scheduled to hold local elections in March next year, with presidential elections due in November 2019.

Turkey is highly vulnerable to loss of foreign capital on which it depends to fund its current-account deficit.

Yesilada says the country would find it even harder to attract foreign capital flows due to geopolitical and global risks such as the lingering Syria crisis and gradual rate hikes by the US Federal Reserve.

 

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