Turkey inflation rate eases but still stubbornly high in December

Economists forecast that double-digit core inflation would persist throughout the first half of 2018. (AFP)
Updated 03 January 2018
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Turkey inflation rate eases but still stubbornly high in December

ANKARA: Inflation in Turkey eased slightly in December after reaching the highest rate in 14 years the month earlier, but remained stubbornly high at almost 12 percent, in a continued headache for policymakers, according to statistics released Wednesday.
Consumer prices rose by 11.92 percent year-on-year in December, the Turkish statistical institute said, down slightly from 12.98 percent in November, which was the highest annual rate recorded since 2003.
On a month-on-month basis, inflation stood at 0.69 percent in December from November, with the biggest price hikes seen in transportation, while clothing prices declined.
The Turkish central bank’s official inflation target is an annual rate of five percent, but double-digit data over the last months have made a mockery of this.
Nevertheless, the bank has been unwilling to make any substantial rate hikes to combat inflation, as President Recep Tayyip Erdogan is wary that raising borrowing costs could put the brakes on growth.
Economists at QNB Finansbank in Istanbul said the December reading of 11.92 percent was the highest year-end figure since 2003.
They forecast that double-digit core inflation would persist throughout the first half of 2018 and could take longer to fall if the lira stayed weak.
“We think inflation will continue to ease over the coming months,” added William Jackson, economist at Capital Economics in London, arguing the latest reading would take some pressure off the central bank for further tightening.
“Even so, headline inflation is likely to remain in double digits until late this year,” Jackson said in a note to clients.
Erdogan has built his popularity on solid stewardship of the economy in the wake of Turkey’s devastating 2000-2001 financial crisis. Any signs of economic weakness would be a bad omen for the Turkish strongman as he prepares for 2019 elections.
Turkey notched up impressive growth of 11.1 percent in the third quarter, but economists warn this masks growing risk factors, such as inflation and a high current account deficit.


Is the Dubai economy turning the corner?

Updated 21 June 2018
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Is the Dubai economy turning the corner?

  • Expo 2020 expected to boost GDP
  • Relaxation of residency rules helps real estate

LONDON: Is the Dubai economy finally turning the corner? At least one major international bank thinks so.

It follows a move by the emirate's leadership to reboot an economy that has been hit hard by corporate job losses, the introduction of VAT and a slowing real estate sector.

The UAE’s non-oil economy is likely to “turn a corner” next year with Dubai’s Expo 2020 infrastructure projects, changes to visa rules and increased government spending set to boost growth, according to a Bank of America Merrill Lynch (BofAML) research note.

Abu Dhabi National Oil Company’s (ADNOC) downstream expansion plans are also expected to drive the country’s non-oil GDP growth, said the note compiled by Middle East and North Africa (MENA) economist Jean Michel Saliba.

The Gulf country’s real GDP growth is estimated to rise to 3.5 percent in 2019 from a forecast 2.8 percent increase this year and a 1.9 percent increase in 2017, said the note published on Thursday.

Buoyed by a recovery in oil prices, Abu Dhabi approved a 50 billion dirham ($13.6 billion) three-year stimulus package in early June, which BofAML estimated could add 0.4 percentage points to non-oil GDP growth.

ADNOC’s $45 billion five-year downstream investment plan — revealed in May — is estimated to add a further 1.1 percentage point to the emirate’s non-oil growth, the report said.

The Expo 2020 event in Dubai could drive up GDP growth by 2 percentage points between 2020 and 2021, the report said, by boosting job creation, consumption and tourist numbers.

Given the improvement in oil prices, the cost of Abu Dhabi’s stimulus spending is considered “financeable” by BofAML, while Dubai’s spending plans are said to be “modest.”

Recent structural reforms, including plans to introduce long-term expatriate visas for up to 10 years, could help to boost the UAE’s population and consumer demand, the note said.

“The new UAE long-term and temporary visa system should facilitate retention of white-collar expatriates,” it said.

“As we expect longer-term visas not to be linked to continued employment, this may increase expatriate incentives to acquire property and support real estate demand.”

The UAE announced in May that it would allow 100 percent foreign ownership of UAE companies in specific industries by the end of the year, a move that could give a welcome boost to foreign direct investment in the country.

A new UAE-wide insurance scheme may provide a one-time boost to corporate profits, the note said.

The UAE cabinet approved plans in June for the insurance scheme to replace the previous system whereby employers had to provide a monetary guarantee to cover each of their workforce.

The move is likely to free up capital that companies could choose to sit on or to reinvest, BofAML said.

“Should corporates invest, we estimate this could lead to a one-off 0.1percentage point boost to UAE non-hydrocarbon real GDP growth,” the report said.