The European Commission's winter forecast downgraded its expectations for Turkey's economic growth in 2014 and 2015, on Tuesday.
The report forecast Turkey´s economy to grow by 2.5 percent in 2014 and by 3 percent in 2014 – 0.5 percent less for this year and 0.8 percent less for 2015 than predicted in the Commission's last forecast in November.
The forecast report said that Turkey´s growth was faster than expected in 2013, but “the outlook for economic activity over the next two years has deteriorated against the background of recent developments."
Monetary conditions have tightened and the stock market has suffered a major correction. The lira's sharp depreciation is stoking inflation and curbing consumers' purchasing power, but should also help the economy to rebalance gradually towards external demand,” the report said.
“Considering the domestic political uncertainty and the possibility of a further sell-off in Turkish financial assets in context of a normalisation of monetary conditions in developed markets, the risks to this growth projection are biased to the downside.”
According to the Commission forecast, Turkey´s annual inflation is projected above 5 percent and the unemployment rate is projected to rise to 10.5 percent in 2014 before levelling off.
The US dollar hit a historic high against the Turkish Lira in mid-January, prompting Turkey's central bank to intervene, for the first time in two years, by selling US dollars.
According to the Turkey's central bank, the inflation is to be between 5.2 percent and 8 percent by the end of 2014 and between 3.1 percent and 6.9 percent at end of 2015.
On January 28, the central bank more than doubled its borrowing rate from 3.5 percent to 8 percent, and raised the lending rate from 7.75 percent to 12 percent.
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