Mubasher: The European Bank for Reconstruction and Development (EBRD) has lowered its projections for economic growth in Turkey for the next year.

This came as the struggling Turkish lira (TRY) and interest rate hikes weighed on consumption and investments.

The EBRD projected Turkish economy to grow at 1% in the next year, compared with a forecast of 4.2% last May.

Moreover, the expansion rate is expected to have slowed to 3.6% for this year, from 7.4% last year following signs of a sharp slowdown in the second half of this year.

Economic rebalancing should help reduce huge external imbalances in the Turkish economy, yet short term external financing requirement remained high, at more than 25% of gross domestic product (GDP), the EBRD said in its latest Regional Economic Prospects report.

The EBRD pointed to risks, including uncertainty about the banking sector and the direction of economic policy, caused by a further possible depreciation of the troubled currency.

The lira remained vulnerable as the Turkish economy heavily relied on foreign capital. The plunge of the currency had hurt capital in banks.

Nevertheless, the Turkish currency seems to have stabilised after a raft of sharp interest rate hike, the adoption of the government’s New Economic Programme and a recent thaw in diplomatic relations with the US, the EBRD report said.