Turkey's government has revised its economic growth forecast upward and vowed reforms to cut stubbornly high inflation, which has been defined as “one of the most challenging problems in the economy now,” and to raise productivity.
The country has raised its 2015 gross domestic product forecast to 4 percent, from the previous forecast of 3 percent, Turkish Deputy Prime Minister Mehmet Şimşek said at a press conference, unveiling the government's updated medium-term economic program.
Şimşek said the latest medium-term program aimed to boost stable and comprehensive growth.
The government raised the GDP forecast for 2016 to 4.5 percent from 4 percent, adding that annual GDP expansion will reach 5 percent in both 2017 and 2018.
“The growth rate may increase up to 4.5 percent mainly upon the rise in domestic demand and partly upon the rise in foreign demand as well as the reestablishment of political stability,” he said.
The government has however revised its inflation rate expectations, citing measures to decrease the inflation rate.
The inflation forecast has been increased by 1 point to 7.5 percent for 2016 compared to the previous forecast. The forecast for 2017 has also been revised up from 5.5 to 6 percent, although the 2018 forecast has been kept the same at 5 percent, which is equal to the target.
The inflation rate increased to 8.81 percent in 2015 amid a persistent rise in food prices and a significant loss in the Turkish Lira's value against the dollar at over 20 percent.
“We'll focus on a number of structural measures that will slash the inflation rate, while raising the productivity rate,” Şimşek added, noting the government had made a considerable effort to decrease the inflation rate to the targeted 5 percent.
“It is a big priority for us to cut the inflation rate… In this vein, we'll make the food committee much more efficient. We have already investigated why food prices were on the rise. A series of measures will also be taken to hinder the hikes in the food sector,” he said.
Unemployment forecast at 9.6 percent by 2018
The government aims to reduce the unemployment rate by 0.6 points by 2018, said Şimşek.
“The unemployment rate that we predict to reach 10.2 percent in 2015 will drop to 9.6 percent at the end of program term in 2018” he noted.
“We expect the unemployment rate to fall in the coming period. With the help of policies, which will be implemented to increase employment and labor force participation rate, we expect the labor force participation rate and employment to rise by 1.1 points and 1.3 points respectively.”
The budget deficit-gross domestic product ratio, targeted at 1.2 percent in 2015, will increase to 1.3 percent in 2016 thanks to ambitious economic reforms and the government's election pledges such as a hike in pension payments and the minimum wage, he said.
“The budget deficit will decrease to 1 percent in 2017 and 0.8 in the end of 2018,” added Şimşek.
He said the aim of the program was to boost the country's fiscal discipline and strengthen public finances.
“We have expected that the U.S. Federal Reserve [Fed] will make rate hikes in a gradual manner and the effects of this move on the Turkish economy will be limited,” Şimşek added.
Turkey's tax income rose 15.6 percent to 407.5 billion liras ($135 billion) last year, while its budget deficit came in at 22.6 billion liras, Finance Minister Naci Ağbal said at the meeting. He said the government has forecasted to transfer around 10.8 billion liras from the privatization authority to the budget in 2016, and this figure stood at around 6.1 billion liras in 2015.
Şimşek also noted the slowing down trend in global trade volume affects Turkey as well as all countries.
Turkey's trade deficit is expected to gradually widen to $55.2 billion this year, $67.2 billion in 2017 and $71.8 billion in 2018, according to the economic program.
Turkish Development Minister Cevdet Yılmaz said at the meeting total investments by both the public and private sectors will be more than $155 billion in 2016.