ISTANBUL: Turkey’s economic growth remains resilient despite political turmoil and the continuing risk of external shocks, the International Monetary Fund said Friday, forecasting that the economy will grow by 3.8% this year. A 30% boost to the minimum wage this year will support local consumption, underwriting the expansion in gross domestic product as the government seeks to grease economic growth, the IMF said.
“Growth remains based on domestic demand, in turn, supported by accommodative monetary and fiscal policies,” the IMF said in its annual report on Turkey. Last year, domestic demand and government spending helped secure 4% economic growth. The IMF said Turkey’s economy remains vulnerable to external shocks, citing a potential acceleration of capital outflows as the main risk.
Turkey’s annualized current-account deficit, long considered the country’s economic Achilles’ heel, shrank to $30.5 billion in February, or about 4.2% of GDP, from $32.03 billion in January, as lower energy imports helped plug external shortfalls.
“Rebalancing of the economy, by increasing the structurally low domestic saving rate and reducing external vulnerabilities, remain priorities,” the IMF said. Turkey also needs to deploy a tighter monetary stance to bring down inflation, the IMF said in its report, which comes just days after the country’s new central bank chief, Murat Cetinkaya, cut a key interest rate.
Normalization of Turkey’s unorthodox monetary policies is required to curb persistently high inflation, the IMF said, forecasting a 9.8% increase in consumer prices by year-end and an 8.8% rise in 2017. Turkey’s annual inflation slowed to 7.5% in March from 8.8% in February owing to a slowdown in food prices. However, price increases remained above the central bank’s 5% official inflation target.
