* Growth forecast lowered to 3.2 percent from 4.5
* Unemployment seen above 10 percent until 2019
* PM stresses growth, forecasts are “pessimistic” scenario (Adds quotes, analyst comment, details, background)
By Gulsen Solaker and Tuvan Gumrukcu
ANKARA, Oct 4 (Reuters) - The Turkish government cut its economic growth outlook and raised its inflation and unemployment forecasts on Tuesday, in what Prime Minister Binali Yildirim described as the “most negative” scenario.
The $720 billion economy grew 4 percent last year but growth has since flagged, with a failed coup in July exacerbating the slowdown and dragging the country further below an annual goal of a 5 percent expansion.
In its medium-term programme, the government said it now expects the economy to grow 3.2 percent this year and 4.4 percent in 2017, down from 4.5 percent and 5 percent forecasts in the programme it issued in January.
Security concerns related to the war in neigbouring Syria, a revived Kurdish militant insurgency in southeast Turkey and a spate of bombings across the NATO member state have scared off investors and visitors alike.
“We experienced troubles with tourism and exports. It was a busy year in the fight against terror, there was a coup attempt. We continued with structural reforms despite this,” Yildirim told a news conference to announce the programme.
“Is 3-4 percent growth enough? This growth is never what we aim for,” he said, vowing continued investments to create jobs in the country of 79 million. Turkey’s expansion was still twice the world average excluding China and India, he added.
The prime minister said growth would rise to 5 percent in 2018 and 2019 in a programme that emphasised growth and increased competitiveness, while aiming to lower inflation and the current account deficit and boost fiscal discipline.
Credit rating agencies have already lowered their outlook on Turkey since the attempted coup. Moody’s cut its rating to “junk” on Sept. 24 citing concerns about the rule of law and risks from a slowing economy, in a move that could deter billions of dollars of investment.
Standard & Poor’s rating is two notches below investment grade, leaving Fitch as the last of the three main agencies to retain an investment rating. Conservative investment funds usually require countries to have at least two investment grade ratings from major agencies for them to invest.
Analysts think Fitch too could announce a downgrade at a review in early 2017 after it lowered its rating outlook to negative following the coup attempt.
Those concerns have soured investor sentiment and put pressure on the lira, which eased to 3.0345 against the dollar at midday on Tuesday, its weakest in two months.
“Growth in particular has been revised down clearly as a result of the weak growth environment abroad, domestic problems with tourism and exports and serious negative factors like increased terrorist activities and the unsuccessful coup attempt,” Banu Kivci Tokali, research director at brokerage Halk Invest, said in a note.
The economic programme forecast consumer price inflation of 7.5 percent at the end of this year and 6.5 percent in 2017, raising the forecast for next year from a previous 6.0 percent.
Yildirim said the government was determined to reduce inflation, forecasting a level of 5 percent in 2018 and 2019.
The unemployment rate is forecast at 10.5 percent this year, remaining above 10 percent for the next two years before dipping to 9.8 percent in 2019. The jobless rate was previously seen falling to single digits in 2017.
Next year, exports were seen at $153 billion and imports at $214 billion, while privatisation revenue was seen dipping to 13 billion lira ($4.3 billion) in 2017 from 15 billion lira in 2016, Finance Minister Naci Agbal told the news conference.
The government forecast a current account deficit of 4.3 percent of gross domestic product this year, up from a previous forecast of 3.9 percent. The budget deficit was seen rising to 46.9 billion lira in 2017 from 34.6 billion lira this year.
“These predictions are pessimistic. They are the worst possible cases. We are keeping our expectations low, if it turns out better all the better,” Yildirim said. (Reporting by Gulsen Solaker, Humeyra Pamuk and Asli Kandemir; Writing by Daren Butler; Editing by Luke Baker and Hugh Lawson)