World Bank cuts Turkey's growth forecast for 2016

ANKARA (AA) - The World Bank has revised its growth forecast for Turkey in 2016 to 3.1 percent from 3.5 percent after last year’s growth of 4.2 percent, the bank said in its economic report on Friday.

The bank kept the country's growth forecast unchanged at 3.5 next year, but cut its July forecast for Turkey's economic expansion in 2018 by 0.1 percentage to 3.5 percent.

"We project GDP [Gross Domestic Product] growth to rebound to 3.5 percent in 2017, thanks to improving net exports due in large part to the removal of Russian sanctions," the report said.

The Turkish government's most recent growth forecast for 2016 was 3.2 percent, as stated in its medium-term economic program released on Oct. 4.

The report said the slower GDP growth in the second quarter of the year led to revising down growth forecast to 3.1 percent for 2016.

"We are revising down our growth projection for 2016 from 3.5 percent to 3.1 percent because private investment and consumption appear to have slowed down in the aftermath of the failed coup attempt," the note said.

The bank said the country's current account deficit was likely to rise in 2016 as tourism revenues fall.

"The rise in global oil prices and negative net exports are expected to bring the current account deficit to 5 percent of national income [GDP] in 2017," the report said.

The bank also warned about the weak Turkish lira. "The depreciation of the lira put additional strain on the balance sheets of corporates, which have large open forex [foreign exchange] position, weighing confidence and investment outlook," it said.

- Volatility increased

Volatility in financial markets has increased since May due to global and domestic factors, the bank said.

“The Brexit vote in late June and the failed coup attempt in July 15 weakened Turkish asses prices but a rapid recovery followed in both cases. Since September, volatility has increased further, reflecting a weak global outlook, expected interest rate hike in U.S., slower domestic growth, a widening external deficit," the report also said.

The Washington-based bank also warned about loans in the country. "Loans have risen faster than deposits, boosting the loan to deposit ratio to 120 percent, lending growth may become a binding constraint on growth in the medium-term."

Food prices in Turkey also created volatility in headline inflation, but it revised down its inflation forecast for the year to 8 percent from 8.5 percent in its last forecast in July.

"Going forward, volatile food prices and the recent wave of lira depreciation, if it becomes permanent, are the main upside risks on the inflation outlook," the report added.