A difficult exam is awaiting the turkish economy. Economic and financial difficulties affected expectations negatively both globally and locally. According to 2019 World Bank report, the global economy by 2.9, while Turkey is estimated to grow by 1.6%. This growth forecast is showing the lowest level in the last 10 years for Turkish economy.
The World Bank released the January 2019 Global Economic Prospects Report, revealing uncertainty and dark clouds awaiting the global economy. The report includes estimates that the global economy will grow by 2.9% in 2019 and as low as 2.8 in 2020. The slowdown in the global economy started in mid-2018 and continued in this direction on a regular basis.
Kristalina Georgieva, World Bank CEO; “At the beginning of 2018 the global economy was firing on all cylinders, but it lost speed during the year and the ride could get even bumpier in the year ahead. As economic and financial headwinds intensify for emerging and developing countries, the world’s progress in reducing extreme poverty could be jeopardized. To keep the momentum, countries need to invest in people, foster inclusive growth, and build resilient societies.”
Revised its forecasts for 2019, The World Bank increased the growth rate they have announced before to 2.9%; while pointing out that international trade and manufacturing activities have slowed down, trade tensions have increased, and some major emerging markets and emerging economies have experienced significant financial market pressures. In the World Bank report, it is stated that the debt deficits of low-income countries are constantly increasing and this leads to more expensive financing resources.
A difficult exam is awaiting the turkish economy: growth estimation for developed countries is 2%
In the World Bank’s report, it is estimated that the growth between developed economies will drop to 2% this year. In emerging markets and emerging economies, it is highlighted that the slowdown in external demand, the increase in borrowing costs and the continuous policy uncertainty are prominent. For this group, the growth in 2019 is expected to be 4.2%, which is weaker than expected.
While commodity exporters stagnated, commodity import activity slowed down. In emerging markets and emerging economies, per capita growth will be insufficient by 35% to narrow the income gap with developed economies. This rate rises to 60% in countries affected by fragility, conflict and violence.
A number of developments could act as a further brake on activity. A sharper tightening in borrowing costs could depress capital inflows and lead to slower growth in many emerging market and developing economies. Past increases in public and private debt could heighten vulnerability to swings in financing conditions and market sentiment. Intensifying trade tensions could result in weaker global growth and disrupt globally interconnected value chains.
The informal sector accounts for about 70 percent in developing economies
World Bank Group Vice President for Equitable Growth, Finance and Institutions, Ceyla Pazarbaşıoğlu commented; “Robust economic growth is essential to reducing poverty and boosting shared prosperity. As the outlook for the global economy has darkened, strengthening contingency planning, facilitating trade, and improving access to finance will be crucial to navigate current uncertainties and invigorate growth.”
In the report, it is stated that the informal sector in the emerging market and developing economies corresponds to 70% of employment and 30% of GDP. This is considered a reflection of lost opportunities, as it relates to lower productivity and tax revenues and more poverty and inequality.
The following are recommendations for general economic development and prosperity; Reducing tax and regulatory burdens, improving access to finance, offering better education and public services, and strengthening public revenue frameworks could level the playing field between formal and informal sectors.
Economical risks have increased for the Turkish economy
The report also discusses regional and country-based views. The evaluation of Turkey featured in the European region for 2019; is estimated to be at its lowest in the last 10 years by 1.6%. This low growth forecast includes significant financial market stress and related economic impacts. High inflation, high interest rates and low confidence; the decline in consumption and investments are pointed out as the reasons limiting economic mobility.
According to the report, the Turkish lira depreciated by 30% last year. Last year’s increase in inflation, perceived delay in monetary tightening and capital outflows are effective in this depreciation. Report; “Turkey has committed to a tight fiscal policy to help reduce the high inflation; and the depreciation of the exchange rate arrangement”.
The World Bank report states that the New Economic Program (YEP); which was announced by the government in September 2018; would be a good basis for restoring macro-stability. Forecasting 19% inflation for this year, and 11% for 2020; the report estimates that Turkish economy will grow by 3%, in 2020; while in 2021the growth will be by 4.2%.