The European Bank for Reconstruction and Development (EBRD) expects Turkey’s economy to contract by 3.5% this year.
The EBRD, whose investments in Turkey have totaled 12.5 billion euro ($14.7 billion) in 325 projects, on Thursday slightly downgraded its forecast for next year to 5% gross domestic product (GDP) growth from 6%.
The projections are in line with other analysts and are more bearish than that of Turkey’s Finance Ministry, which this week said it expects 0.3% growth this year despite fallout from the coronavirus pandemic, which hammered exports and the key tourism sector.
The central bank unexpectedly raised interest rates last week by 200 basis points to address double-digit inflation and a record low lira. Though the currency kept falling this week, the EBRD does not expect any more monetary tightening.
Turkey’s monetary policy rate is 10.25%, still below annual inflation which is near 12%. The lira touched a record low of 7.85 versus the dollar on Tuesday and is among the world’s worst performers this year, down nearly 25%.
In its report, the EBRD said it expects GDP per capita in Turkey to return to 2019 levels by the end of 2022.