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Following several years of strong growth and significant external borrowing, the exchange rate has depreciated steadily since mid-2017. Intensified market pressures in August 2018 led to a further depreciation of around 30%, followed by a partial recovery thereafter. The economy is projected to contract in 2019 as a sharp fall in domestic demand from the second half of 2018 will be offset only partially by an increase in exports. A gradual recovery in domestic confidence and demand is projected to help growth to recover in 2020.
Regaining business, household and investor confidence in monetary and fiscal policies will be crucial. The central bank should remain independent and monetary policy should remain tight to ensure that inflation converges to target. Fiscal targets should be realistic and met to maintain credibility, which would be supported by the publication of quarterly general government accounts according to international standards. These projections assume that the impairment of corporate balance sheets is contained.
1. Three-quarter moving average.
2. The ratio is calculated using exchange rates prevailing on 31 December 2017, 31 August 2018 and 18 October 2018. OECD estimates.
Source: OECD Economic Outlook 104 database; The Ministry of Treasury and Finance; Banking Regulation and Supervision Agency (BRSA); and OECD calculations.
Economic Survey of Turkey (survey page)