Turkey is to remain among the fastest-growing major emerging market (EM) economies, Qatar National Bank (QNB) said in its weekly analysis released on Saturday.

Turkey’s economy experienced a strong growth upturn in 2017. Growth accelerated to an estimated 6.8 percent compared with 3.2 percent in 2016. However, QNB expected the growth to moderate to 5.4 percent and 5.3 percent in 2018 and 2019, respectively.

According to QNB, there are three main factors driving Turkey’s growth trajectory:

1. Credit fund

• 2017: The Turkish government launched a 250bn Turkish lira (approximately $70bn) credit guarantee fund (CGF), which guarantees loans to the private sector and is focused on lending to small and medium enterprises.
• By the end of 2017, 80 percent of the CGF had been utilized and loan growth reached 20.8 percent, driving a surge in gross domestic product (GDP) growth.
• 2018: With the majority of the CGF utilized, credit growth is expected to moderate in 2018 and 2019, causing growth to ease.
• However, loans made under the CGF are expected to be rolled over when they mature and the additional 20 percent is expected to be fully disbursed over the next two years, keeping financial conditions accommodative.

2. Exports and tourism

Turkey’s exports in 2017 grew by an estimated 12.9 percent, driven by increased tourism.

• Turkey’s largest trading partner is Europe, and growth in the European Union (EU) picked up from 1.9 percent in 2016 to 2.3 percent in 2017, pushing up demand for imports from Turkey.
• In addition, tourist arrivals bounced back after depressed levels in 2016. Arrivals gained by 27.9 percent in 2017 compared with a 30.1 percent contraction in 2016.
• But EU growth is expected to ease to 2.1 percent and 1.8 percent in 2018 and 2019, respectively, and tourist flows, also highly dependent on European growth, are unlikely to accelerate, given the rapid growth in 2017.

3. Fiscal policy

• The authorities eased fiscal policy in 2017, with lower taxes on durable goods and property.
• The fiscal deficit widened to 1.5 percent of GDP in 2017 from 1.3 percent in 2016.
• The deficit is projected to rise to 2.0 percent of GDP by 2019. This should partly offset less credit stimulus and softer external demand.