Bank revises up its forecast of 3.6% economic growth for its countries of operation in October 2020 as recovery gains pace
Turkey’s economy is expected to grow by 5.5% in 2021 and 4% in 2022, according to the forecast of the European Bank for Reconstruction and Development (EBRD) released on Tuesday.
The forecast for Turkish economic growth this year is driven by exports, as the bank said domestic demand remains constrained by the impact of weaker household financial circumstances.
For 2022, the EBRD forecast economic growth of 4% in Turkey and 3.9% in its countries of operation.
During a virtual news briefing, EBRD President Odile Renaud-Basso confirmed the bank’s commitment to invest in green projects in Turkey with an emphasis on the environment, specifically with the private sector where 95% of the bank’s investments are made.
The EBRD revised its economic growth forecast to an average of 4.2% growth in emerging economies in eastern Europe, Central Asia and Northern Africa as the recovery gathers pace following the COVID-19 pandemic. This represents a better growth rate from the bank’s previous forecast cited in its Regional Economic Prospects report in October 2020 of 3.6%.
According to the EBRD, as the increasing rollout of vaccination programs and the improving situation in public health allows for a gradual withdrawal of social distancing measures and other restrictions, the economy has restarted.
“Our forecast shows that the recession has been a bit less dramatic than expected,” Renaud-Basso said.
Output contraction in 2020 was also milder at 2.3% than previously forecast, which was 3.9% following improvements in the overall economic environment late last year thanks to strong exports and fiscal support.
Industrial production and retails sales have mostly recovered and the average mobility of people in the EBRD’s countries of operation has largely returned to the pre-pandemic levels, the EBRD said.
Higher commodity prices helped commodity exporters by boosting their revenues and manufacturing demand has been strong, the bank said.
In central Europe and in the Baltic states growth of 4.8% is expected this year and will reach 4.6% in 2022 with the impact of strong household consumption and investment supported by EU recovery funds, as the southern-eastern EU GDP is expected to grow by 5.2% this year and 5% in 2022.
The bank forecasts economic growth of 5.1% in the Western Balkans this year and 3.8% in 2022.
Russia’s economy is expected to grow by 3.3% in 2021 and 3% in 2022, as the easing of restrictions on activity supports recovery in domestic demand. In Eastern Europe and Caucasus economies, growth of 2.8% is expected this year and 3% next year.
The outlook for Central Asia shows a 4.5% growth rate in 2021 and next year, while southern and eastern Mediterranean economies are expected to grow by 3.5% this year and 4.5% in 2022.
EBRD to be fully Paris aligned by end of 2022 at latest
Renaud-Basso said the bank aims to focus on projects that are in compliance with the Paris Climate agreement and which target issues of inclusion, gender balance, and digitalization.
“Our one important objective is to be a majority green bank by 2025, at least half of our projects with a green dimension and pact. Now we want to increase our activity in this area with a complementary approach which means to be fully Paris aligned by the end of 2022 at the latest,” she said.
“This means we will look at every project with finance which is consistent with the Paris Agreement.”
The bank’s annual investment in its countries of operation averages around €10 billion, but she said last year was an exception with €11 billion with more liquidity needs due to the pandemic.
She added that the bank will be able to maintain the same level of investment and could expand further in Africa and Iraq, which are on the table for expansion.
International tourism remains uncertain
However, the outlook for international tourism remains highly uncertain due to still widespread travel restrictions with sustained impact on tourism-dependent economies.
“The picture for 2020 is diverse. While several countries in central Europe and the Baltic states performed well relative to many advanced European economies thanks to a strong rebound in exports of goods, economies heavily reliant on tourism took a hard hit,” EBRD Chief Economist, Beata Javorcik, was quoted as saying. “And in countries afflicted by challenging economic circumstances prior to the pandemic, Covid-19 only compounded the existing problems.”
She said that although the revised forecasts give reasons to be optimistic, huge uncertainty remains with regards to the path of the COVID-19 Delta variant which poses particularly large risks for countries that have made less progress with vaccinations and for economies highly reliant on international tourism.
The bank said foreign direct investment in most of the EBRD regions remains far below their pre-crisis levels and fiscal vulnerabilities have increased as large stimulus packages raised public debt in the EBRD regions by an average of 11 percentage points of GDP.
“In many economies, public debt is now at levels last seen during the transition recession of the early 1990s and may rise further. While bankruptcies have so far remained contained owing to extensive policy support, vulnerabilities may surface when government support measures are withdrawn,” the bank said in the report, warning that forecasts are highly sensitive to the path of COVID-19 infections, assumptions related to government policies, and effectiveness of actions to limit persistent economic damage.