World Economy

Turkey Growth May Fall Into Negative Territory

Turkey Growth May Fall Into Negative TerritoryTurkey Growth May Fall Into Negative Territory

As private investment and consumption appear to have slowed down in the aftermath of the failed coup attempt, high frequency indicators suggest real GDP growth may fall into negative territory in Turkey in the third quarter, which will bring full-year GDP growth in 2016 to 3.1%, compared to 3.5% envisaged earlier, said the World Bank in a note on Nov. 25.

“The recent geopolitical developments have increased domestic uncertainty and weakened business confidence,” said Johannes Zutt, World Bank Country Director for Turkey, Anadolu Agency reported.

 “We project GDP growth to rebound to 3.5% in 2017, as the removal of Russian sanctions enables net exports to improve. That said, private investment is likely to remain weak in 2017, though structural reforms aiming to rebuild business confidence and improve the investment climate should gradually help to raise private investment in the medium-term,” he added.

“The current account deficit is likely to rise in 2016, as tourism revenues fall,” said Donato De Rosa, World Bank Lead Economist for Turkey.

“Foreign arrivals to Turkey dropped sharply in 2016 on the back of Russian sanctions and security concerns, which curbed flows from Russia and Europe. The rebound of global oil prices since early Q1 will show its negative impact with a lag, increasing the energy deficit in 2017,” added De Rosa.

The note underlines that volatility in financial markets has increased due to global and domestic factors.

Moreover, in late September, Moody’s cut Turkey’s credit rating from Baa3 to Ba1, one notch below investment grade. “As a result, Turkey has seen portfolio outflows, and the Turkish Lira has come under pressure,” stated Ayberk Yilmaz, economist in Turkey office of the World Bank.

 A Risk Factor

Turkey is currently preoccupied with many obvious problems. But there’s one up-and-coming issue that deserves immediate attention, as it has the potential to become a major security risk.

The youth unemployment problem in Turkey can no longer be solved with short-term and makeshift localized solutions. Parallel to the economic slowdown plaguing the country for a year, the unemployment rate has also risen.

According to the Turkish Statistical Institute, unemployment in Turkey reached 11.3% in August. Since August 2015, the number of unemployed Turks has grown by 435,000 (1.2 percentage points).

For years, Turkey’s youth unemployment rate has been below the European Union average. But in June, for the first time, it surpassed the EU average of 18.5% to reach 19.9%.


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