Turkey needs to grow on demand from abroad: IMF

ISTANBUL – Hürriyet Daily News

Mark Lewis, senior resident representative of the IMF in Turkey, speaks during a presentation of the IMF’s updated World Economic Outlook in Istanbul. AA photo

Turkey’s growth, which displayed strong performance in the first half of the year thanks to public investments, will weaken over the rest of the year, before likely regaining its momentum in 2014, a senior International Monetary Fund (IMF) official has said.

“We witnessed a strong growth in the first half of this year, but we expect growth to slow down a little, and to re-strengthen again in 2014. This momentum will be preserved in 2015 as well,” Mark Lewis, senior resident representative of the IMF in Turkey said yesterday during a presentation of the IMF’s updated World Economic Outlook (WEO) entitled “Transitions and Tensions” in Istanbul.

Stressing the important thing about growth’s quality is making it dependent on foreign demand rather than domestic demand, Lewis dubbed the change in Turkey’s growth rate, compared to previous years as “stabilization,” instead of a “slow down.”

The Turkish economy slowed down to an annual GDP growth of 2.2 percent in 2012 from more impressive levels of around 9 percent in the preceding two years.

In the first and second quarters the nation’s economy expanded at faster-than-expected paces of 3.3 and 4 percent respectively, mainly due to soaring domestic demand and increasing public spending.
In line with Lewis’ expectation, both the Turkish government and analysts have forecasted the growth to slacken in the second half of the year.

The government reduced its growth rate target from 4 percent to 3.6 percent for this year and from 5 percent to 4 percent for 2014 in the mid-term economic program it revised on Oct. 7.

The IMF’s forecast for Turkish growth was slightly more pessimistic at 3.8 percent for 2013 and 3.5 percent for 2014, it announced in the World Economic Outlook report.

Moreover, the IMF called on Turkey in the beginning of October to tighten its monetary and fiscal policies to reduce its external imbalances, which have been exacerbated by capital outflows from emerging markets.

Emerging market risks

The troubles of an economy slowing down is not only Turkey’s headache; all of the emerging market economies have begun to feel the negative repercussions of changing dynamics in the world, the IMF analysts presenting the report stressed yesterday.

The October report, which consists of the IMF’s updated view on the economic developments and policies in its member countries, was primarily researching the impact of two new developments that have changed and will change the dynamics.

First, markets are increasingly convinced the U.S. monetary policy is reaching a turning point, despite a subsequent decision by the Federal Reserve to maintain the amount of asset purchases and policy actions in other countries, the report read.

Second, there is a strengthening conviction that China, as well as other emerging markets will grow more slowly over the medium term than in the recent past.

The IMF report predicts optimistically the U.S. will taper its program gradually, but still slash its growth forecasts for emerging markets, steeply for some.