OECD lowers Turkish growth forecast to negative 0.4 percent

Turkey’s economy is expected to contract by 0.4 percent next year, the Organisation for Economic Co-operation and Development (OECD) said.

The 36-member organisation, comprising the world’s largest economies, had predicted in August that Turkey would grow by 0.5 percent in 2019. The only other economy expected to post negative growth next year is Argentina, where the decline was seen at 2.9 percent, the OECD said in a report on Wednesday. Overall growth in member states is expected at 3.7 percent.

“A sharp fall in domestic demand from the second half of 2018 will be offset only partially by an increase in exports,” the OECD said in the report, which also covered the economies of other member states. “A gradual recovery in domestic confidence and demand is projected to help growth to recover in 2020.”

Turkish economic activity has slowed sharply after investors pulled money out of the country on fears that the economy was overheating. The lira extended losses in August, reaching a record low, because of a political crisis with the United States over the detention of a U.S. pastor.

“Regaining business, household and investor confidence in monetary and fiscal policies will be crucial,” the OECD said. “The central bank should remain independent and monetary policy should remain tight to ensure that inflation converges to target.”

Global growth next year will be led by India and China, whose economies are expected to expand by 7.3 percent and 6.3 percent, respectively, according to the report.

Turkish inflation, pushed up after the lira fell by about a third against the dollar this year, will probably be 19.5 percent in 2019 compared with 16.8 percent in 2018, the OECD said. Consumer price inflation climbed to 25.2 percent in October, the highest level in 15 years.

The country’s current account deficit will probably narrow to 2.9 percent of GDP in 2019 from 5.3 percent this year, the organisation said. Unemployment was seen at 12.7 percent next year versus 10.8 percent in 2018.