Turkish growth is projected to be below potential in 2016 and 2017, the International Monetary Fund said on February 3 citing a number of political and economic factors.

The Fund expects Turkey’s economy to expand at 2.9% this year and at 3.3% in 2018 versus estimated, finalised growth of 2.7% in 2016.

The economy faces considerable downside risks - high inflation, external imbalances and substantial reliance on external financing continue to generate vulnerabilities - while Turkey is dealing with complex geopolitical and security challenges, the Fund warned.

 “The political focus on transitioning to a presidential system [if there is a 'yes' in the April referendum]; renewed questions over the future of EU-Turkey relations; and the tense security situation in the southeast and conflicts in neighbouring countries are expected to prolong the uncertainty, keeping domestic demand subdued,” the IMF said in a statement on its website in regard to Article IV consultations.

But it added that it believed the fiscal stimulus and the expected completion of the gradual lifting of Russian sanctions are likely to support growth. “Over the medium term, growth is projected to firm at around 3.5%. Inflation is expected to stay above target and the current account deficit to remain sizeable,” it said.

The Fund advised that a tighter fiscal stance is required in the medium term to reduce external imbalances and lower inflation.

Earlier this month, the World Bank cut its 2017 GDP forecast for Turkey to 2.7%, citing headwinds that would prevent a strong economic recovery.