Turkey's economy dim as growth outlook sharply sliced

Turkey's lira as plunged by 40 per cent so far in 2018.

Turkey sharply cut its growth forecasts for this year and next on Thursday, but disappointed investors who had hoped for a plan to help banks and a deeper reduction in the estimates to reflect the fragile state of the economy.
Turkey has seen its lira currency plunge by 40 per cent this year on concerns about President Tayyip Erdogan's influence over monetary policy and a bitter diplomatic rift with the United States. The turbulence has shaken global financial markets and raised the prospect of a potential banking crisis at home.
Markets had been hoping that Finance Minister Berat Albayrak's medium-term programme announced on Thursday would signal a clear break from the emphasis on credit-fuelled growth that has characterised Turkey's rapid expansion over the last decade and a half under Erdogan's rule.
Albayrak said growth would be 3.8 per cent this year and 2.3 per cent in 2019, both revised down from forecasts of 5.5 per cent. He also did not deliver the big plans for the banking industry that some analysts had been hoping for, particularly, the creation of a "bad bank" vehicle to take over non-performing loans.
Following the presentation, the chairman of Turkey's banking watchdog, BDDK, said that there would not be a transfer of problem loans to another institution.
"At the moment, the programme is a disappointment. First, when you look at the growth forecast, the current account deficit forecast, they are too ambitious," said Guillaume Tresca, a senior emerging-market strategist at Credit Agricole.
"We don't have anything new, regarding a bad bank, regarding the treatment of [non-performing loans], regarding the foreign-exchange funding of the banking system or the foreign-exchange funding of the corporates. It is lacking details and it is lacking news."
The lira weakened to 6.3100 by 1219GMT, from around 6.20 beforehand and a close of 6.2541 on Wednesday. The currency has now erased almost all the gains made since the central bank's mammoth interest rate hike of 6.25 percentage points last week, underscoring the difficulty policymakers face in putting a floor under the lira and restoring confidence.
Sources told Reuters on Wednesday there was a debate among top government officials about the extent of the growth revisions, highlighting the delicate balance between Erdogan's long-standing drive for economic expansion and investors' calls for greater austerity.