Garanti Bank: Lending to improve as the economy picks up. 1.4 pc tax code’s impact on GDP. Key interest to reach 1.5 pc as of 2016

The local financial subsidiary of Turkish Garanti Group estimates that lending will improve as the economic activity entered an upward trend, according to the bank’s latest Macroeconomic Report, corresponding to the third quarter of 2015, a press release informs.

“New loans have grown constantly this year. In fact, between July and August, new loans have increased by 30 percent annualy and we expect them to follow an ascending path in 2016 as well”, Ufuk Tandogan, CEO Garanti Bank stated.

The acceleration is due to the corporate segment. The demand from companies is clearly increased in the third quarter, as the bank expected.

In the second quarter, the industry sector did not rush into production and sold out inventories, which led to a slower annual GDP growth rate of 3.4 percent, and a quarterly increase of only 0.1 percentage points.

According to the Macroeconomic Report, the national currency has been stable for the past two years and possible decisions by the Federal Reserve (Fed) regarding the increase of interest rate can lead to volatility in this regard.

Garanti Bank estimates that the Central Bank will cut the key interest from 1.75 percent to 1.5 percent at the beginning of next year.

The new fiscal code became effective in September 2015 with sizable impact on the prices, real income and state budget balance. The bank expects it to have a total impact on budget deficit of around 1.4 percentage point of GDP. Also in September, the annual inflation stood at -1.7 percent. Furthermore, Garanti Bank experts estimate that deflation will persist until May 2016. Moreover, public wages have been hiked and further increases are expected next year.

“All in all, Romania will maintain a high growth rate compared to the region and will continue to attract capital both as FDI and portfolio investments due to still high real yields,” the Turkish bank concluded.