Bloomberg News

Goldman Sachs Cuts Turkey’s 2012 Growth Estimate to 0.5%

December 01, 2011

Dec. 1 (Bloomberg) -- Goldman Sachs Group Inc. cut its estimate for Turkey’s gross domestic product growth next year to 0.5 percent from 1.5 percent, according to an e-mailed statement today.

Turkey is likely to experience a “sharp economic slowdown on the back of tightening domestic and external financing conditions,” Goldman said in a report on central and eastern Europe and the Middle East by analysts including Ahmet Akarli dated Nov. 30. “The Euro-area crisis has recently taken a turn for the worse,” the analysts said, adding that “the crisis will culminate in output losses, especially in the periphery.”

Balance sheet strength and economic interconnectivity will be key factors for emerging economies in weathering the crisis, with interconnections being detrimental as it leaves economies exposed to “ripple effects throughout the region.”

A resolution of the European crisis could lead to a “significant recovery in asset prices” in Turkey, the analysts said, “which could be the trigger for recovery through 2013.”

The Turkish economy may rebound in the second half of 2012 as external conditions normalize, Goldman said. There is “limited scope” for appreciation of the lira, the world’s second worst-performing currency this year after the South African rand, over the next six to 12 months, it said.

Turkey’s recovery from the 2008 global financial crisis was strong though “not particularly well-balanced; it was primarily driven by domestic demand, which led to a significant deterioration in Turkey’s external imbalances,” the analysts wrote.

Sticky Inflation

The coming year may be one of “two halves” for Turkey, according to the report, with the first half of the year characterized by economic challenges and the second possibly bringing a “solid rebound,” depending on Europe’s response to the debt crisis, it said.

Inflation is likely to remain “sticky” at around 10 percent through the middle of next year, pushing Turkey’s central bank to reinforce tighter monetary conditions, which will contribute to a slowdown in economic activity, the report said.

Goldman also adjusted its forecasts for the lira downward, predicting it weakening to 1.95 per dollar in three months.

--Editors: Ash Kumar, James Kraus

To contact the reporter on this story: Benjamin Harvey in Istanbul at bharvey11@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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