Turkey’s Economic Growth Forecast Revised Downward as Earthquakes and Credit Tightening Loom

In a surprising turn of events, the European Bank for Reconstruction and Development (EBRD) has revised its growth forecast for Turkey in 2023, painting a slightly bleaker picture for the country’s economic prospects. The new projection of 2.5 percent marks a downward adjustment from the previously expected 3 percent, as revealed in the bank’s latest Regional Economic Prospects report.

The EBRD attributes this revision to two major factors that are set to challenge Turkey’s economic stability. Firstly, the impact of the devastating earthquakes that struck the nation in February is anticipated to leave a lingering dent on its growth potential. While the negative output shock resulting from the earthquakes is estimated to be less than 1 percent this year, the total damage caused by these natural disasters surpasses a staggering $100 billion, according to the EBRD report.

Additionally, the report highlights the impending credit tightening measures that are expected to be implemented in response to Turkey’s external imbalances. These measures, aimed at addressing the country’s increasing short-term external debt and bolstering its foreign-exchange reserves, may have an adverse effect on Turkey’s growth trajectory during the latter half of the year.

The EBRD’s Regional Economic Prospects report underlines Turkey’s economic vulnerabilities, such as the continuation of a growing current account deficit, low foreign-exchange reserves, and mounting pressure on the Turkish lira. These factors further compound the challenges that lie ahead for the Turkish economy.

Despite these setbacks, Turkey exhibited a robust start to 2023, with substantial growth driven by resilient household and government spending. However, the uncertainties surrounding the post-election economic policies could exert a significant influence on the country’s economic course.

Looking ahead, the EBRD predicts that the reconstruction efforts following the devastating earthquakes will contribute to economic growth in 2024, with a projected expansion of 3 percent. This optimistic outlook hinges on the successful implementation of reconstruction plans and the stability of economic policies.

The EBRD’s investments in the Turkish economy have been substantial, surpassing €17.3 billion, primarily channeled into the private sector. These investments reflect the bank’s confidence in Turkey’s long-term potential and its commitment to supporting the country’s economic development.

As Turkey navigates through the challenges posed by the aftermath of the earthquakes and impending credit tightening, all eyes are on the government’s economic policies and their ability to steer the nation toward a path of sustainable growth. The resilience and determination of the Turkish people, coupled with strategic measures and support from international financial institutions, will play a vital role in shaping the country’s economic future.


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