Turkey, Russia to grow slower than the rest of emerging Europe: IMF

ISTANBUL - Reuters

According to the report, Turkey’s growth in domestic demand is expected at 6.2 percent for 2013, 0.5 percent in 2014 and 3.1 percent in 2015.

The International Monetary Fund said Russia and Turkey – the region’s two largest economies – were expected to slow despite central, eastern and south-eastern Europe forecasted to see growth almost double this year.

In a new report, the IMF said the region was expected to benefit as the euro zone recovers from its debt crisis, but the tension over Ukraine and market concern as the U.S. reduces its monetary stimulus were creating high uncertainty.

“An unusual constellation of risks cloud the outlook,” the IMF said in its spring Regional Economic Issues report, unveiled in meeting held in Istanbul April 29.

Although the bulk of the region was forecasted to see growth almost double this year to average 2.3 percent, Russia and Turkey were expected to slow.Only this month, the Fund cut its 2014 Turkish growth forecast to 2.3 percent.

“Despite a projected improvement in net exports, growth in Turkey is expected to weaken in 2014 to 2.3 percent from 4.3 percent in 2013, mainly as a result of a sharp slowdown in private consumption driven by macro-prudential measures, the sizable exchange rate adjustment, and interest rate hikes,” the report said.

According to the report, Turkey’s growth in domestic demand is expected at 6.2 percent for 2013, 0.5 percent in 2014 and 3.1 percent in 2015. While estimating Turkey’s real exports growth at 0.1 percent in 2013, 5.6 percent in 2014 and 6.1 percent in 2015, the IMF report expects real domestic consumption growth of 3.9 percent for 2013, 0.3 percent in 2014 and 2.5 percent in 2015.

But the international institution was more optimistic regarding the country’s public performance, saying “public investment will likely hold up in line with the 2014 budget targets.”

Risks to Russian growth

The fund also underscores the risks emerging to threaten Russia’s economy, particularly after geopolitical tension escalated with the Ukraine row.

Aasim Husain, the deputy head of the IMF’s European department, said tension between Russia and the West over Ukraine and the potential impact of sanctions were being studied now by an IMF team. That team is in Russia and is due to report this week.

“The impact is not so much from the sanctions themselves, but the effects on confidence that arise from what future sanctions might look like,” Husain told reporters. “I am not going to offer a guess as to how much of downward revision [in the growth forecast] there will be, but I am almost certain we will see a downward revision.”

The United States froze assets and imposed visa bans on seven Russians close to President Vladimir Putin on April 28. It also sanctioned 17 Russian companies in reprisal for Moscow’s actions in Ukraine.
Some effect on other countries in the region from the escalating tensions was likely, Husain said, but the financial links with Russia and Ukraine were “not large,” except in a few cases such as Moldova and Belarus.

He added, though, that for central and eastern Europe, “The concern is what happens if the Russian economy slows. Sanctions and counter-sanctions and the related effects on confidence would be a huge dampener on investment prospects in Russia.”

Inevitably, the greatest worry was energy. About 40 percent of Europe’s gas comes from Russia, and even more goes to central and south-eastern Europe. Russia also supplies about a third of Europe’s oil.