Turkey's economy to contract sharply this year, The lira TRY has lost 25% of its value in 2020

ISTANBUL (Reuters) - Turkey’s economy will shrink 3.4% in 2020, a Reuters poll showed on Wednesday, a much bleaker outlook than government forecasts, as the coronavirus pandemic triggers an annual contraction for the first time in more than a decade.

The median forecast in the Oct. 13-20 Reuters poll of 48 economists in and outside Turkey for 2020 growth compared with a median 4.2% contraction in the previous poll. Ankara sees growth of 0.3% this year but has said a contraction of 1.5% was possible under a worst-case scenario.

The third and fourth quarters of 2020 will see year-on-year contractions of 2.6% and 2.3% respectively, according to the median poll estimate, after a 9.9% contraction in the second quarter, when restrictions imposed to curb the coronavirus hit hardest.

Ankara halted intercity travel, imposed weekend lockdowns, shut schools, restaurants and bars and closed some factories to slow the spread of the respiratory pandemic, before most restrictions were lifted in June.

But the economy is expected to bounce back sharply to hit 4.1% growth in 2021, according to the poll, though still well below the government’s forecast of 5.8%. The outlook is vulnerable to uncertainty around another wave of the coronavirus, said Berna Bayazitoglu, of Credit Suisse.

“The recovery beyond the near term is also subject to uncertainty due to Turkey-specific factors, such as the further impairment during this period of corporate balance sheets and the overall lack of policy credibility/visibility,” she said.

Turkey’s economy last contracted on an annual basis in 2009, by 4.7%. From 2010 to 2018, its average growth rate was more than 5% due mainly to a construction boom driven by cheap capital following the global financial crisis. CENTRAL BANK Turkey’s central bank has recently tried to balance supporting resurgent economic activity with taming stubborn double-digit inflation and defending an ailing lira that has hit record lows over the past two months.

The lira TRYTOM=D3 has lost some 25% of its value so far this year.

The central bank is facing one of the biggest challenges among central and eastern European central banks, UniCredit said in a note, adding it would likely hike again this year.

Source: Reuters 21/10/2020