September 20, 2018 / 9:54 AM / 2 months ago

Turkey slashes growth forecasts for 2018, 2019 in economic plan, lira steady

* Growth seen down to 2.3 percent in 2019, rising to 5 pct in 2021

* Inflation seen at 20.8 percent this year, 15.9 pct in 2019

* Unemployment to rise to 12.1 percent in 2019

By Ezgi Erkoyun and David Dolan

ANKARA, Sept 20 (Reuters) - Turkey sharply cut its growth forecasts for this year and next in its new medium-term economic programme on Thursday, amid a deep currency crisis that has seen the lira fall by 40 percent this year.

Finance minister Berat Albayrak’s presentation showed growth was expected to be 3.8 in 2018 and 2.3 percent in 2019, both revised down from previous forecasts of 5.5 percent.

“We will see a gradual growth increase from now on. Our main goal is to establish 5 percent growth from 2021 onwards,” Albayrak said at the presentation in Istanbul. Growth was seen at 3.5 percent in 2020.

“We will realise the necessary policies and measures to ensure economic hardships are overcome,” he said. “We are aware of the economy’s strong and weak points.”

Sources had said Turkey would cut its economic growth estimates, although they had said there was debate among top government officials about the extent of the revisions.

That discussion underscored the delicate balance between President Tayyip Erdogan’s long-standing emphasis on credit-fuelled economic expansion and investors’ calls for greater austerity.

Albayrak, Erdogan’s son-in-law, had previously promised “realistic macro targets” and “right action plans”.

The lira traded at 6.21 after the programme was announced, from around 6.20 beforehand and a close of 6.2541 on Wednesday.

INFLATION, UNEMPLOYMENT SEEN RISING

The currency has been hit by concerns over Erdogan’s influence over monetary policy. A diplomatic row between Ankara and Washington over the trial of a U.S. evangelical pastor in Turkey has added to pressure on the lira.

The central bank hiked interest rates by 6.25 percentage points last week in a bid to tame double-digit inflation and put a floor under the lira. The currency had made moderate gains since then.

The programme forecast that inflation would rise to 20.8 percent this year before dropping to 15.9 percent in 2019 and 9.8 percent in 2020.

Investors want to see signs the government is moving away from a decade and a half of growth driven by credit and big infrastructure projects.

Turkey’s unemployment rate was expected to rise to 11.3 percent in 2018 and 12.1 percent in 2019 before falling to 11.9 in 2020, the presentation showed.

Albayrak said Turkey will prioritise investments in pharmaceuticals, energy, and petrochemicals to reduce its current account deficit, which was seen falling to 2.6 percent of gross domestic product by 2021 from 4.7 percent seen in 2018.

He also said Turkey would suspend all investment projects for which the tender process has not been finalised. He also said Turkey would revise its social insurance schemes and restructure its incentive scheme for exports. (Additional reporting by Ebru Tuncay, Can Sezer and Tuvan Gumrukcu; Writing by Daren Butler; Editing by Toby Chopra)

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