EBRD lowers Turkiye GDP forecast, upgrades Russia

LONDON — Turkiye's quake-hit economy will grow this year by less than previously forecast, while Russian output will shrink far less than expected despite Ukraine conflict sanctions, Europe's development bank said on Tuesday.

The European Bank for Reconstruction and Development, or EBRD, published its latest outlook for a region hit by rampant inflation and slowing global economic activity.

The EBRD predicted Turkish GDP will expand 2.5 percent this year, cutting prior guidance of 3 percent and citing the impact of "unorthodox" loose monetary policy alongside one of the world's highest inflation rates, as well as February's deadly earthquake.

Official estimates put the damage inflicted by the earthquake at more than $100 billion, the EBRD said.

Turkiye, meanwhile, faces a presidential runoff on May 28 between President Recep Tayyip Erdogan and challenger Kemal Kilicdaroglu after neither candidate secured the 50 percent threshold to win in Sunday's election. EBRD chief economist Beata Javorcik told Agence France-Presse: "No matter who wins, there are some difficult choices awaiting the new Turkish government."

It came as Turkiye's main banking stock index tumbled 9.6 percent as markets gauged potential fallout from a possible continuation of Erdogan's unorthodox policies, including combating high inflation with low-interest rates. The index rose last week 26 percent, the largest weekly gain since late 2002.

The Istanbul bourse benchmark fell 6.1 percent on Monday, its largest daily percentage drop since early February.

The lira posted its largest percentage drop in over six months to end at 19.67 per dollar — a closing record low. It earlier touched 19.70, not far from the record intraday low of 19.80 hit in March.

Turning to Russia, the EBRD forecast Tuesday that its economy will shrink 1.5 percent, compared with a previous estimate of a 3 percent contraction.

The upgrade for the key energy producer was driven by higher oil price expectations and as Western sanctions force it to sell elsewhere.

The EBRD also noted that its region's inflation remained stubbornly high at 14.3 percent in March, after spiking last year on soaring energy prices after the start of the Ukraine conflict.

2023 is "a very difficult year for Central Europe and Baltics, as inflation is eroding the purchasing power of consumers", Javorcik added.

Agencies - Xinhua