ANKARA

The World Bank revised its growth forecast for Turkey in 2015 to 3 percent from 3.5 percent, the bank said in a report released on Friday.

Reduced demand pressured growth lower in 2014, the bank said, keeping growth below potential, the report noted.

"Subdued aggregate demand in the second half of 2014 kept growth at 2.9 percent in 2014. While the pace of expansion accelerated to 0.7 percent quarter-on-quarter in the fourth quarter, the full year print remains below potential," the report said. 

Exports were down as well.

"Externally, net exports subtracted 2.9 percentage points from growth in the fourth quarter, as a dip in the global economy translated into negative export growth while import demand recovered," the report said.

Domestic demand rose, adding 1 percent to growth in the fourth quarter, but not enough to compensate for the drop in exports, according to the report.

"Inventories increased substantially, making the largest contribution to growth with 2.5 percentage points in the fourth quarter. The unexpected inventory build-up and a series of poor leading indicators suggests that the current economic weakness is likely to be extended into the first half of 2015."

 Turkey is still FDI target

Inflows of funds to Turkey accelerated in the fourth quarter.

Turkey attracted $4.1 billion in FDI, $1.6 billion of portfolio inflows, and $2.7 billion of other investment in the period.

"The 12-month rolling current account deficit declined to $42.8 billion (5.4 percent of GDP) in February 2015, from $46.9 billion (5.8 percent of GDP) in September 2014.

The organization said that the fall in energy prices and weak domestic demand are helping bring the country's current account deficit down.

 Encouraging signs for job creation

 While job creation was slower, there were encouraging signs from the construction and services sectors, in which employment increased by 34,000 and 185,000 respectively.

 "The increase in the nonagricultural labor force slowed to just 191 thousand, allowing unemployment to fall by 24 thousand. As a result, the nonagricultural unemployment rate  declined to 12.4 percent, from 12.6 percent, in the period December-February," the report said.

 Inflation still a challenge  

The bank forecast Turkey's inflation rate to hit 7 percent from  for the end of 2015.

"Monthly energy inflation accelerated in February and March, due to another considerable depreciation of the lira and a small recovery in global energy prices, feeding through to rising transport prices as well. Moreover, monthly food inflation, along with the prices of catering services rose in February and March, bringing the annualized 3-month food inflation rate to 12.9 percent in March, up from 4.5 percent in December," the report said. 

"But in the face of further exchange rate depreciation, the impact on inflation is less than expected. As the pace of disinflation has markedly slowed, the year-end projection is now 7 percent,"  the World Bank said in its regular cconomic brief of Turkey which issued in Ankara. 

 The Outlook

Growth is expected to pick up in the second half of the year, and to accelerate to 3.9 percent in 2016.

"With mixed impulses from the global economy, despite signals of a recovery in the Eurozone, it is likely that households and corporates will postpone key spending decisions until after the elections. Under the assumption that domestic demand recovers sharply after the elections, as uncertainty is resolved, growth will accelerate in the second half of the year, but the carry-over from a weak start will keep the yearly pace of expansion to 3 percent," the report said.

Lower oil prices should keep the current account deficit to 4.4 percent of GDP, according to the report.

Prime Minister Davutoglu announced a new set of measures worth of 7.5 billion Turkish liras ($2.8 billion) (0.4 percent of GDP) to support growth and employment in April, the report noted, adding that the effect of the measures could accelerate growth.