Turkish economy may contract 6.5 percent, says IMF

Turkey’s economy may shrink 6.5 percent this year, the International Monetary Fund, or IMF, said in a report Thursday, revising a previous outlook to predict a deeper recession.

The IMF’s prediction exceeds the government’s estimate of a contraction of 6 percent this year and is more than the 5.1 percent shrinkage the fund predicted its World Economic Outlook in July. 

“The government last week revised down its own growth assumption for 2009 to minus 6 percent, with 3.5 percent growth forecast in 2010, so the IMF's latest forecasts are more or less in line with the official view,” said Tim Ash, chief of Europe, Middle East and Africa research at Royal Bank of Scotland in London, wrote in an e-mailed report to investors. 

“A 3.5 percent to 3.7 percent growth rebound seems optimistic in our view, given the global context still, albeit with a minus 10 percent print for the first quarter of the year, the low base period effect should kick in.”

Gross domestic product, or GDP, dropped 14.3 percent in the first quarter of this year, the sharpest decline since quarterly records began in 1987, and fell 7 percent in the second quarter.

The slump has eaten into tax revenue and forced the government to spend more on support jobs and pay for social security support.

The Central Bank has slashed the benchmark interest rate by 9.5 percentage points in 11 months as the slowdown helped reduce the inflation rate. Consumer-price inflation will average 6.2 percent this year and 6.8 percent next year, the IMF said.

The current-account deficit will narrow to 1.9 percent of GDP this year from 5.7 percent in 2008, the IMF said. The deficit in 2010 will be 3.7 percent of GDP, it said.