World Bank says Turkey economic recovery fragile

The World Bank said an economic recovery in Turkey remained fragile because of a credit expansion and the possibility of the country’s external imbalances worsening.

Industrial production and manufacturing data suggest that Turkey’s economy began to stabilise in late 2019, but risks remain, the World Bank said in its Global Economic Prospects report.

Turkey is expected to expand by 3 percent next year after zero growth in 2019, as investments and imports recover from a deep contraction, the World Bank said. Those predictions lagged government estimates of 5 percent and 0.5 percent, respectively.

The Turkish economy is recovering from a currency crisis in the summer of 2018 that ravaged economic activity and led to a surge in non-performing loans and bankruptcies. The government has sought to return the country to growth with tax cuts and cheap lending by state-run banks.

A gradual improvement in domestic demand is expected to underpin economic growth, the World Bank said, but it said its outlook depended on steady fiscal and monetary policy, a stable currency and smooth implementation of corporate debt restructuring.

The Turkish lira fell by 11 percent against the dollar last year, adding to losses of 28 percent in 2018. The central bank has slashed its benchmark interest rate in half to 12 percent since July as inflation briefly slowed to single digits. Annual consumer price inflation stood at 11.8 percent in December.

The bank also pointed to Turkey’s problems in resolving corporate insolvencies, saying those hitches could dampen overall productivity because less productive firms would continue to operate.