Positive atmosphere in the economy and IMF warnings

The optimistic atmosphere in economy we have been experiencing since February is continuing. Particularly in the growth leg of economy, positive data keeps coming. Like last year, discussions have begun regarding the possibility of growth that exceeds expectations. Even though it is now difficult to reach growth rates of 5 percent and above as in the past, a growth rate of between 3 and 4 percent is regarded as quite positive under the current global conditions. 

According to survey results released by the Central Bank at the beginning of the week, while the rise in the capacity use rate is continuing, the real sector confidence index in April has reached 110 percent following an increase of 4 points. All this preliminary data points to a strong course in terms of growth, just like the first four months of the year.

Meanwhile, we should say that in inflation a positive atmosphere is back again with the fall in food prices.

Market players have started adjusting their end-of-year inflation expectations to 7 percent. This is still a very high rate, but expectations were much more pessimistic even two months ago. 

The biggest role in these positive developments is the acceleration in the inflow of hot money since February and the fall brought by this in the foreign exchange rates. 

Meanwhile, it should be mentioned that there is a general opinion that the current atmosphere will not be a long-term one. The biggest cause of the positive mood is the postponement of the U.S. Central Bank Fed’s hikes and the short-term capital flowing into countries like ours because of the continuation of the liquidity increase in developed countries. The Fed’s announcement on April 27 will be closely monitored and everybody in the global markets is curious as to whether or not the Fed will give a signal for the start of rate hikes in June. If a sign is received for June rate hikes, the atmosphere could change quickly. Even if no sign emerges from this meeting, there is an expectation that there could be signs as June comes closer. Consequently, the current atmosphere may continue for one or two more months. 


Vulnerable to external shocks

Meanwhile, in the Country Report of the IMF on Turkey, the resilience in growth was explained as well as future risks.  

In the IMF report, it was stated that the economy remained vulnerable to external shocks and the main risk for Turkey remained an acceleration of capital outflows. 

The IMF executive directors generally saw a need for a tighter monetary stance to bring down inflation. They agreed on normalizing the monetary policy framework. Directors also recommended rebuilding international reserve buffers.

In short, it is not quite expected that the positive atmosphere experienced in the economy will continue into the second half of the year. The Fed rate hikes will start sooner or later and the capital outflow, as stated by the IMF, constitutes a huge risk. 

Since there is no escape from this, the economic bureaucracy, starting with the government and the Central Bank, has to act cautiously.