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Turkish economy to bounce back by 6% in 2021, says EBRD

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Turkey is likely to see a contraction of 3.5% in 2020 because of the economic impact of the coronavirus pandemic, the European Bank for Reconstruction and Development (EBRD) said in its latest macroeconomic forecast.

The bank expects the country to recover rapidly in 2021 with GDP growth of 6.0%, but it said that the forecast is heavily dependent on the duration and extent of the social distancing measures to contain the COVID-19 virus.

“Domestic and external demand will be hard hit by the pandemic. The significant decline in tourism revenues and weaker export demand will put more pressure on the external balance, although if sustained, the lower oil price will provide limited support given Turkey’s dependence on imported energy,” said Olga Rosca, EBRD spokesperson for Turkey, Romania, Bulgaria, Serbia, Moldova and Azerbaijan.

“Likewise, the lower oil price, alongside the sharp slowdown in domestic activity, will help offset the inflationary impact of the weakening lira.”

The report also warns against asset quality deterioration in the Turkish banking sector.

“With the non-performing loan ratio standing at a ten-year high of 5.3%, the weakness of the lira and contractions in tourism, retail and export sectors are likely to put further stress on the already strained asset quality of banks, particularly in light of the large foreign-exchange-denominated debt overhang in the corporate sector.”

The recovery will depend on a gradual relaxation of domestic restrictions to curb the spread of the virus and a return to normality during the second half of the year, Rosca added.

Economies across the EBRD regions may contract on average by 3.5% this year, with a rebound of 4.8% possible in 2021, the report said, warning that the projections are subject to “unprecedented uncertainty”.

EBRD Chief Economist Beata Javorcik said that as the world emerged from the crisis it was crucial to look towards a future of cooperation and greater economic resilience.

“The crisis has been a massive hit and coming out of it will be just as challenging. This is not the time to engage in economic nationalism and protectionism, but a time to shape a better future through international commitment to free trade, climate change mitigation and economic cooperation,” she said.

The report assumes a modest impact of the crisis on the long‐term trajectory of economic output, with growth resuming towards the end of the third quarter, but potentially significant longer-term economic, political and social effects.

“If social distancing remains in place for much longer than anticipated, the recession may be much deeper, with the 2019 levels of output per capita not attained again for years to come,” the report concluded.