IMF revises its 2015 growth projection for Turkey to 3.1% from previous 3%

By bne IntelliNews April 14, 2015

Turkey is projected to grow by 3.1% this year, up from 2.9% last year and a 0.1 percentage point upward revision from the previous forecast in October 2014, as consumption will be boosted by lower energy prices, said the IMF on April 14 in its flagship half-yearly World Economic Outlook. The Fund expects the Turkish economy to grow by 3.6% next year. The Turkish government’s GDP growth projections are 4% for 2015 and a higher 5% for 2016.

Deputy PM Ahmet Davutoglu recently unveiled a TRY7.5bn (€2.7bn) package to boost Turkey’s $800bn flagging economy through several measures, spanning from insurance premium support to employers to certain tax reliefs. The Turkish economy grew by 2.6% y/y in Q4/2014, above the 1.9% y/y expansion registered in the previous quarter. But, Turkey’s GDP growth slowed to 2.9% in the whole of 2014, down from 4.2% in 2013.

The current account deficit will narrow further thanks to a substantial fall in the value of energy imports, said the IMF, which forecasts a deficit of 4.2% of GDP this year, down from 5.7% last year. But, the Fund expects the current account deficit to widen to 4.8% of Turkey’s national income as growth picks up in 2016. Turkey pays around $45bn-$50bn each year for energy imports. The government forecasts a current account deficit of $46bn, or 5.4% of GDP, this year and it expects the shortfall to decline to 5.4% of national income next year.

The IMF stressed that further easing of monetary conditions should be considered only once inflation expectations are anchored at the target rate and the real interest rate is clearly in positive territory. Inflation will ease to 6.6% this year and further to 6.5% in 2016 from last year’s 8.9%, said the IMF, noting that a tighter fiscal stance—as envisaged in the new medium-term program—will contribute to gradually narrowing external imbalances and will reduce pressure on monetary policy.

The IMF lifted its growth projection for the Euro area to 1.5% for 2015 from a previous 1.3%, noting that growth in the Euro area is showing signs of picking up, supported by lower oil prices, low interest rates, and a weaker euro. Europe is Turkey’s largest export market. The European Central Bank’s ample stimulus measures are boosting lending to companies, the Wall Street Journal reported on April 14, citing the ECB’s quarterly bank lending survey which suggests the bank’s recently launched €1 trillion asset-purchase program improves funding conditions.

IMF World Economic Outlook
2015 Forecasts, % Oct-14 Apr-15
2015 GDP growth 3.0 3.1
Annual Inflation 7 6.6
Current Account Deficit / GDP -6 -4.2
Unemployment 9.9 11.4
Source: IMF

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