IMF praises Turkish economy, maintains global growth forecasts

WASHINGTON/ISTANBUL

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The International Monetary Fund (IMF) has hailed Turkey’s 2017 economic growth thanks to a strong recovery in the country’s exports in its updated World Economic Outlook, in which the fund kept its growth forecasts for the world economy unchanged for this year and next, although it revised up growth expectations for the euro zone and China.

In its updated outlook, which was published on July 23, the IMF forecasted that in Emerging and Developing Europe, growth is to pick up in 2017, primarily driven by a higher growth forecast for Turkey, where exports recovered strongly in the last quarter of 2016 and the first quarter of 2017 following four quarters of moderate contraction and external demand is projected to be stronger with improved prospects for euro area trading partners.

It did not make any change in its growth forecast for Turkey. In its previous report, which was published in April, the IMF forecasted that the Turkish economy would grow 2.5 percent in 2017 and 3.3 percent in 2018. 

The global economic recovery is on firmer footing as improving growth in China, Europe and Japan offset downward revisions for the United States and Britain, the Fund said. 

However, wage growth remains sluggish, which risks increasing tensions that have pushed some countries toward more anti-global policies, while efforts to erode financial regulations put in place since the 2008 crisis could erode stability, the IMF warned.

“The recovery in global growth that we projected in April is on a firmer footing; there is now no question mark over the world economy’s gain in momentum,” IMF chief economist Maurice Obstfeld said, as quoted by AFP on July 24. 

“Recent data point to the broadest synchronized upswing the world economy has experienced in the last decade,” he said, presenting the latest update by the World Economic Outlook (WEO). 

The fund still expects the global economy will grow by 3.5 percent in 2017 and 3.6 percent in 2018, the same as April’s WEO.


Key revisions for US, UK

However, the unchanged forecast masks some significant revisions, including in the United States where the IMF downgraded its growth estimate last month after judging that spending plans promised by U.S. President Donald Trump that had been expected to provide a boost to the economy were stuck in limbo.

The U.S. estimate was cut to 2.1 percent for this year and next, down 0.2 points and 0.4 points, respectively, from the more optimistic forecast in the last report.

The outlook for the British economy was also revised down by 0.3 points to 1.7 percent this year on weaker-than-expected activity in the first quarter, while the impact of Brexit “remains unclear.”

But those downward revisions were offset by the improving outlook in key economies, including the euro area where growth prospects have improved in France, Germany, Italy and Spain.

The euro area now is projected to see economic growth of 1.9 percent this year and 1.7 percent in 2018.
Japan is also seeing improved growth prospects, with an expansion of 1.3 percent this year expected, although that is seen slowing sharply to 0.6 percent in 2018.

Meanwhile, China continues to be a major engine of global growth, expanding by 6.7 percent this year and 6.4 percent next, driven by economic policies in Beijing.

The forecast for 2017 was revised up by a percentage point of 0.1, “reflecting the stronger than expected outturn in the first quarter,” which the IMF said was underpinned by Beijing’s “supply-side reforms.”

The 0.2-point upward revision for 2018, however, was the result of the expected delay in the “needed fiscal adjustment,” which could cause risks down the road.

China’s “higher growth is coming at the cost of continuing rapid credit expansion and the resulting financial stability risks,” Obstfeld warned in his prepared statement.

However, within the mostly upbeat forecasts, the IMF once again sounded the warning on the growing anti-global sentiment, which could leave all economies worse off.

That has been fueled in part by the fact that benefits of increased growth have not been broadly shared.

“Even as unemployment is falling, wage growth still remains weak. That not only holds back the improvement of living standards, but also carries risks of exacerbating social tensions that have already pushed some electorates in the direction of more inward-looking economic policies,” Obstfeld said.