(MENAFN - The Peninsula) The Peninsula
DOHA: Despite a modest slowdown in growth, Turkey will still be one of the fastest growing EM economies in 2018. Its growth will be outpaced only by India and China - amongst the largest EM economies in the world, QNB Group yesterday noted in its weekly ‘economic commentary.'
Turkey's economy experienced a strong growth upturn in 2017. Growth accelerated to an estimated 6.8 percent compared to 3.2 percent in 2016. QNB expects growth to moderate to 5.4 percent and 5.3 percent, in 2018 and 2019 respectively. Nonetheless, this growth will still keep Turkey amongst the fastest growing major emerging market (EM) economies after India and China.
There are three main factors driving Turkey's growth trajectory. The first is a government backed credit stimulus. The government launched a TRY250bn (approximately $70bn)credit guarantee fund (CGF), which guarantees loans to the private sector and is focused on lending to small and medium enterprises.
By the end of 2017, 80 percent of the CGF had been utilised and loan growth reached 20.8 percent, driving a surge in GDP growth. With the majority of the CGF utilised, credit growth is expected to moderate in 2018 and 2019, causing growth to ease.
However, loans made under the CGF are expected to be rolled over when they mature and the additional 20 percent is expected to be fully disbursed over the next two years, keeping financial conditions accommodative.
Second, external demand has been an important source of growth for Turkey. Turkey's largest trade partner is Europe and growth in the European Union (EU) picked up from 1.9 percent in 2016 to 2.3 percent in 2017, pushing up demand for imports from Turkey.
In addition, tourist arrivals bounced back after depressed levels in 2016. Arrivals gained 27.9 percent in 2017 compared to a 30.1 percent contraction in 2016. These factors were highly supportive of robust export growth in Turkey in 2017, estimated at 12.9 percent.
However, EU growth is expected to ease to 2.1 percent and 1.8 percent in 2018 and 2019, respectively, and tourist flows, also highly dependent on European growth, are unlikely to accelerate given the rapid growth in 2017. 'Hence, we believe external demand will be softer in 2018 and 2019, also imposing a small drag on growth, QNB analysts said.
The third factor is fiscal policy. The authorities eased fiscal policy in 2017 with lower taxes on durable goods and property. The fiscal deficit widened to 1.5 percent of GDP in 2017 from 1.3 percent in 2016. QNB expects the authorities to boost spending and maintain growth-friendly tax policy.
The deficit is projected to rise to 2.0 percent of GDP by 2019. This should partly offset less credit stimulus and softer external demand.
Taken together, these factors point to growth slowing and QNB forecasts average growth of 5.4 percent in 2018 and 5.3 percent in 2019.
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