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IMF Forecasts Weak Turkey Economic Performance
World Economy

IMF Forecasts Weak Turkey Economic Performance

The International Monetary Fund (IMF) predicts that Turkey’s medium term economic performance is likely to be weaker than in the recent past if the country does not change its economy policies.
“Without a change in policies, medium-term economic performance is likely to be weaker than in the recent past,” the IMF said in its 2014 Article IV Consultation-Staff Report on Turkey released on Friday, Today’s Zaman reported Saturday.
Stating that Turkey’s low domestic savings and challenges related to competitiveness are limiting investment and exports, the report said the IMF staff has revised annual medium-term growth to about 3.5 percent on current policies and national saving rates.
“The lower growth rate is expected to contain inflation and the deterioration of the current account, although both will remain elevated at about 6 percent,” the report said.
“Policies should focus on rebalancing the economy, reducing the external deficit — by boosting savings rather than decreasing investment — and lowering inflation to preserve competitiveness,” the report’s summary said.
Noting that Turkey’s economy has grown on average by 6 percent annually since 2010, the report said this has come at the expense of a persistently large external deficit making the economy sensitive to changes in external financing conditions.
“Inflation is high and above the authorities’ target, and real policy interest rates remain negative. The exchange rate continues to be stronger than suggested by fundamentals,” it says.
According to the report, Turkish authorities broadly share staff’s outlook for Turkey. “They recognize downside risks to their original official growth forecast for 2014, and that inflation is likely to exceed their objective.
For 2015, however, the authorities see an acceleration of growth to around 4 percent, as they expect domestic demand to play a larger role. They believe the real exchange rate is close to equilibrium and judge that the improvement in the external balance will continue with increased net exports,” the report said.
It added that Turkish authorities acknowledge that, in the medium term, rebalancing the economy towards investment and exports is necessary to avoid a decline in trend growth. “However, they believe their reform program will be sufficient to achieve this objective,” it said.

 

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