Global emerging market challenges and political risk threaten Turkey’s growth prospects

Global emerging market challenges and political risk threaten Turkey’s growth prospects

Turkey is due to release its economic and GDP data for the second quarter today, with a strengthening global economy

1527098220_

Photo: Reuters/Murad Sezer

Turkey is due to release its economic and GDP data for the second quarter today, with a strengthening global economy expected to boost growth and export figures. However, rising interest rates in the US and other developed economies are likely to present challenges to Turkish growth for the remainder of the year.

Data for Q2 is expected to show growth of under 5%. After growing by almost 7% in the first quarter, the Turkish economy had one of the highest growth figures of the major emerging market economies. Growth for the remainder of 2018 is still expected to be strong, at 4.5%, but is forecast to slow to below 4% in 2019 and 2020. Additionally, political instability, accelerating inflation and significant capital outflow will present an ongoing challenge to Turkey’s leaders and potentially constrain further growth for 2018. Upcoming elections will likely further strain the economy, with incumbent President Erdogan expected to win re-election. He is expected to continue his push for stronger government involvement in central bank policy, and interest rate decisions, both of which are of concern to foreign investors.

Turkish economic expansion for the remainder of 2018 is expected to be heavily reliant on a calm political environment, and on accelerating exports and consumer expenditure. Growth forecasts for the remainder of 2018 are expected to be cut due to the deteriorating value of the lira, and difficulties maintaining inflation and the current account deficit.

But with the value of the Lira closely tied to the country’s political dynamics and inflation remaining a serious short-term risk, expectations for growth should be moderated.