International credit ratings agency Fitch Ratings, in its global economic report published on its website on 02.04.2020, forecast that the world economy will contract this year due to the rapid spread of the coronavirus infection. The agency has also downgraded its economic growth forecast for Turkey to 0.8% in 2020 from its previous forecast of 3.9%. On the other hand, it increased its forecast for 2021 for Turkey to 4.5% from 4%. The agency’s forecast for Turkey’s annual inflation rate was 8.5% in 2020, down from its previous forecast of 10.5%, and the rate for 2020 was maintained at 10%.
In an interview with Anadolu Agency (AA) today, Fitch Ratings’ the agency’s sovereign team director Douglas Winslow said that Turkey would get back to its growth trend next year following the expected end of the COVID 19 pandemic later this year. He noted that economic growth in the first quarter of 2020 was on target for above 6% before the advent of the coronavirus pandemic. He said that they “now anticipate a very sharp contraction in the second quarter, flatter growth in the third quarter and then recovery in the fourth quarter, as activities begin to normalize after the partial lockdown". However, he warned that if the virus is not effectively contained and partial lockdown conditions continue into the third quarter, significantly weaker growth would be expected.
Winslow said that the main reason behind the agency’s forecast of a slight GDP growth in 2020 as a whole of 0.8%, despite the negative effects of the coronavirus, is that the strong momentum early in the year driven by a recovery in private bank lending, as well as the lower interest rate is likely to be still very active following the virus lockdown. He noted that Turkey has ramped up measures to cushion the blow struck by the pandemic. President Recep Tayyip Erdoğan last month announced a TL 100 billion (USD 14.74 billion) relief package – the Economic Stability Shield – that slashes taxes for hard-hit sectors and has unlocked funding for workers, while the central bank has flooded the financial sector with cheap lira liquidity. These measures are likely to have an overall positive effect on economic activity in the year.
Winslow mentioned that the fall in petrol prices will significantly lower the Turkish import figure and have a positive effect on inflation. Exports are also likely to fall as global economic activity contracts, and in particular the Turkish automotive industry, the locomotive behind the Turkish economy, will be adversely effected from the forecasted 4.2% shrinking of the Eurozone, Turkey’s biggest export market. The fall in domestic demand and in economic activity in general will also drive down inflation, which Fitch has forecast to be 8.5% this year, down from 11.86% in March.