The World Bank has downgraded Turkey’s GDP (Gross Domestic Product) growth forecast to 1.4% for 2022 in its latest report due to the Russia-Ukraine war and internal dynamics.
The ECA (Europe and Central Asia) Economic Update report said the country wouldn’t maintain its GDP growth of 11.0% in 2021.
“The war in Ukraine is exacerbating domestic headwinds that predated the conflict, including shrinking investment and a sharp rise in policy uncertainty after multiple policy rate cuts fueled a nearly 20-year-high inflation rate of 54.4% and triggered the TRY to fall to new record lows against the USD,” the report said.
The institution emphasized that the Russia-Ukraine war, which has raised commodity prices and is expected to generate additional inflationary pressures in Turkey, will further erode real incomes and dampen consumption.
Touching on tourism, the World Bank said the war would likely have a detrimental impact, as visitors from Russia and Ukraine account for about a quarter of total tourists visitng Turkey.
The report also noted that Turkey is dependent on energy imports, with about 40% of its total natural gas and petroleum imports sourced from Russia. “With little opportunity to substitute imported energy with domestically produced energy sources in the near term, higher energy prices will translate directly into a larger import bill. This will widen the current account deficit and weigh on the value of the TRY,” the report read.
Pointing out Turkey’s heavy reliance on agricultural imports from Russia and Ukraine, the World Bank said: “Together, Russia and Ukraine account for more than three-quarters of Turkey’s wheat imports and sunflower seed oil imports, leaving Turkey’s economy exposed to supply and trade disruptions from the war and thus higher prices.”
The World Bank forecasted Turkey’s economic growth at 3.2% for 2023 due to macro-financial impacts and 4.0% for 2024. Assuming that global commodity prices remain high and that monetary policy stance doesn’t change, annual inflation is estimated to hit 61.0% in Turkey at the end of 2022. The current account deficit is expected to generate 6.4% of the country’s total GDP.