Turkey economy expected to contract 3.5 percent this year, bounce in 2021: EBRD

Turkey’s economy is expected to contract by 3.5 percent this year, in line with other economies in the region, the European Bank for Reconstruction and Development (EBRD) said on Wednesday.

Economic activity will probably rebound sharply in 2021, with growth of 6 percent expected, the EBRD said in its latest Regional Economic Prospects report. The forecast was heavily dependent on the length and extent of social distancing measures put in place by the government, it said.

Turkish President Recep Tayyip Erdoğan has sought to keep the wheels of the economy turning but severely supressed demand for the country’s exports, a shuttered tourism industry and curfews in many of the country’s most-populous cities are hitting manufacturing and services hard.

The International Monetary Fund is predicting an economic contraction for Turkey of 5 percent this year.

The EBRD warned against a deterioration of asset quality in the banking industry, pointing to rising non-performing loans, which it said are at a 10-year high. Lira weakness, along with a contraction in tourism, the retail sector and exports, is likely to further strain banks’ balance sheets, it said.

The lira sank to an all-time low of 7.269 per dollar last week, raising concerns for financial stability. It has since recovered to trade at 6.99 per dollar.

The European bank’s forecast for Turkey’s economic expansion next year exceeded the average estimate of 4.8 percent for regional countries.