IMF lowers Turkey’s growth forecast for 2021 and 2022

K. Murat Yıldız / Duvar English 

The World Economic Outlook Report of the International Monetary Fund (IMF) has revised and lowered growth expectations for the Turkish economy. The IMF downgraded its growth forecast for 2021 from 6 percent to 5.8 percent and lowered its growth forecast for 2022 from 3.5 percent to 3.2 percent.

In light of recent developments, the IMF has stated in its updated World Economic Outlook Report that economic expectations have become more disparate between countries since April.

The IMF concluded that access to the COVID-19 vaccine has divided global economic recovery levels and that stable recovery cannot be guaranteed as long as the pandemic continues, even in countries where the number of cases is very low.

In the IMF report, the Turkish economy's growth forecast for 2021, which had previously been set at 6 percent, has been lowered to 5.8 percent. Moreover, the growth forecast for 2022 has been reduced from 3.5 percent to 3.3 percent.

The negative aspects of Turkey's investment and production climate, as well as the frequent changes and uncertainty of government decisions, are among the most important factors in the IMF's downgrading of Turkey's growth forecast.

Other factors that resulted in this fragility of growth include the almost complete cessation of foreign direct investment capital inflows, the acceleration of capital outflows, rising unemployment, production costs, depreciation of the lira, the heavy credit debt burden of both individuals and businesses, and the decline in spending capacity etc.

Meanwhile, the main opposition Republican People's Party (CHP) called on the government for a "realistic determination of the Medium Term Program (MTP) and Medium Term Financial Program (OVMP) targets, which should be announced by the government in September,” and to “stop writing imaginary economic success stories with targets that will not be realized or will deviate heavily, and are not convincing either at home or abroad."

“Turkey is the only country whose growth forecasts for both 2021 and 2022 have been lowered among the 38 countries included in the growth forecasts table in the report,” economist Cüneyt Akman told Duvar English.

“Some countries have had their July 2021 revisions reduced even more than Turkey. For example, India's growth forecast for 2021 has been lowered by three points (-3 percent), Malaysia's by 1.8 points, and the Philippines' by 1.5 points. Despite this, growth forecasts for these countries have been raised or maintained for 2022," he said. 

Noting his expectations that Turkey's GDP might rise well above 6 percent and approach 7 percent, Akman said, “Despite the demand arising from the hope of a partial recovery from the pandemic and the base effect from the extremely bad year of 2020, economic growth in dollar terms may not deliver what is expected if exchange rates rise faster than expected as a result of a sudden interest rate cut operation.”

Negative global forecast for developing countries

The IMF did not change its global economic growth forecast for this year as the outlook for 2021 remained negative for developing countries and positive for advanced economies.
The trillions of dollars in financial aid provided to large segments of the population as a result of the pandemic in the United States, monetary aid in other developed economies, as well as new pandemic measures are said to be fueling the divergence between countries according to the report.

According to the IMF report, some countries, such as Brazil, Hungary, Mexico, Russia, and Turkey, have begun to normalize their monetary policies in order to combat rising inflation and upward price pressures, but it appears that these steps will take time to bear fruit.

On the other hand, according to the IMF, the global economy is now expected to grow by 6 percent in 2021, with the growth forecast for 2022 being raised from 4.4 percent to 4.9 percent.

Despite the current high uncertainties, inflation is expected to return to pre-pandemic levels in most countries in 2022, according to the report, which stated that recent price pressures mostly reflect extraordinary developments related to the pandemic and temporary supply-demand mismatches.