ANKARA

The World Bank revised its growth forecast for Turkey in 2016 to 3.5 percent from 3.9 percent and to 3.5 percent from 3.7 percent for next year, the bank said in a report released on Wednesday.

Growth in the country is estimated to have accelerated to 4.2 percent in 2015 from 2.9 percent in 2014, the bank said in its bi-annual Global Economic Prospects report. 

"Economic activity has been substantially above expectations, despite geopolitical tensions, as well as continuing policy uncertainty that was amplified by the inconclusive June elections,” the report noted.

The bank warned about economic reforms in Turkey. "The last election in November of last year gave the ruling AK Party a majority in Parliament, enabling the formation of a government without coalition partners, but policy uncertainty remains, as key economic policy decisions of the new government are awaited," the report said.

Turkey benefits from low oil prices

Low oil prices have provided support to the current account balance and to output, according to the report. "But the lira has depreciated substantially so far this year, stoking inflation," the report warned.

"Low oil prices and a firming of activity in the Euro Area are helping stabilize the current account deficit at below 5 percent of GDP," the report said. "Economic activity in Turkey will benefit from low fuel prices, but will face headwinds from tepid export demand (including negative effects from Russian sanctions) and tighter external financing conditions."

Turkey’s exports reached $143.9 billion in 2015, an 8.6 percent decline from $157.6 billion in 2014, according to the Turkish Exporters’ Assembly.

‘Refugee effects need not be negative’

The bank said that several countries in the region face significant geopolitical risks. "An escalation or failure to resolve the conflict in eastern Ukraine would harm the prospects of one of the largest economies in the region and undermine confidence," the report said.

According to the bank, the economic effects of the refugee crisis over the next 1-2 years may be predominantly fiscal.

“Over time, as refugees integrate into host countries and find productive employment, the overall economic effects need not be negative," the bank said.

Bank cuts global growth forecasts

The Washington-based bank also lowered its forecast for the global economy in this year's growth to 2.9 percent, from a previous projection of 3.3 percent in June, according to the report.

The bank said global economy advanced 2.4 percent in 2015, less than a forecast of 2.8 percent in June. The bank forecast that the world economy will grow 3.1 percent in next year, 0.1 percentage point lower than its previous forecast.

According to the bank, the deteriorating economic and financial environment in emerging markets is a main reason for a fifth straight year of global growth below 3 percent.

"The global economy will need to adapt to a new period of more modest growth in large emerging markets, characterized by lower commodity prices and diminished flows of trade and capital," Kaushik Basu, World Bank Senior Vice President and Chief Economist said in the report.

"The simultaneous slowing of four of the largest emerging markets -- Brazil, Russia, China, and South Africa -- poses the risk of spillover effects for the rest of the world economy,” Basu warned. "Global ripples from China’s slowdown are expected to be greatest but weak growth in Russia sets back activity in other countries in the region."

The bank cut its 2016 growth outlook for the world's second economy, China, to 6.7 percent, from 7 percent in its previous estimate, and a 6.5 percent increase is estimated for 2017. Brazil's economy will contract 2.5 percent this year, while Russia’s will shrink 0.7 percent, the bank said.