ANKARA: The World Bank cut its economic growth forecast for Turkey this year to 3% from 3.5%, and warned that restoring confidence through reforms was crucial to boost investment and increase the economy’s medium-term potential.
The unexpected inventory buildup and a series of poor leading indicators suggest the current economic weakness is likely to be extended into the first half of 2015,” the World Bank said in its regular economic report for Turkey.
Turkey’s economy grew 2.9% last year, missing the government’s 3.3% target and slowing from a 4.2% growth rate in 2013.
The World Bank said the fall in energy prices and weak domestic demand were helping the country to bring its current- account deficit down, but in the face of further exchange-rate depreciation, the impact on inflation was less than expected.
The World Bank lowered its 2015 current-account deficit forecast for Turkey to 4.4% of gross domestic product from its previous forecast of 4.5% in December.
Turkey’s annual inflation rate rose to 7.61% in March from 7.55% in February, as a jump in food prices and currency depreciation exerted inflationary pressure.
The World Bank raised its inflation forecast for Turkey in 2015 to 7% from its previous projection of 6.7% in December.
The bank said the sharp rise of the U.S. dollar and domestic uncertainty had put the pressure on Turkey’s currency, with the lira’s depreciation among the strongest in emerging markets since the start of the year. The currency has dropped 15% against the dollar year to date.
The Turkish lira weakened to record low of 2.731 against the dollar on Wednesday, spurred by the country’s deteriorating economic outlook, political tensions before elections June 7, coupled with uncertainty over Turkey’s economic management after the vote. Expectations of a rise in U.S. interest rates later this year have also weighed on the currency.
Uncertainty related to the upcoming parliamentary elections continues to weigh on investor sentiment; rapid implementation of key structural reforms is critical to restore confidence,” the World Bank said.