OECD cuts int’l growth estimate, warns Turkey

ISTANBUL - Hürriyet Daily News

Turkey’s inflation and the current account deficit are projected to remain well above comfort levels, the Organization for Economic Cooperation and Development (OECD) said in its biannual outlook report yesterday. However, the organization is optimistic about the growth rate, which it predicts will be at around 4 percent in 2013 and will exceed 5 percent in 2014.

“Growth has slowed markedly since mid-2011, with a deceleration in domestic demand only partly offset by surging exports. As a result, the large current account deficit has begun to narrow,” the report’s section on Turkey said.

“However, the gains in competitiveness, mainly stemming from the nominal exchange rate depreciation in 2011, have since then largely been eroded, not least by persistently high inflation,” it said.

Inflation warning

The OECD advised Turkey to continue to focus on lowering inflation: “Fiscal policy could play a more active countercyclical role if international and domestic conditions worsen. However, this should be done without undermining fiscal credibility.”

Fiscal credibility would be bolstered by introducing a public spending ceiling and publishing quarterly consolidated general government accounts based on international standards, it also said.

Meanwhile, the report is rather pessimistic about the global picture. Global growth is set for a sharp slowdown next year and the eurozone debt crisis “remains the greatest threat to the world economy at present,” the OECD warned.

In its latest Economic Outlook, drafted before the eurozone and IMF unblocked almost 44 billion euros ($57 billion) in emergency loans for Greece, the OECD also cautioned that “the risk of a new major contraction cannot be ruled out” after a global slump in 2009.

The organization slashed its outlook for the 34-member OECD area, which includes most of the world’s industrialized economies, in 2013 to 1.4 percent from a previously expected level of 2.2 percent.
On a global level, the OECD cut the 2012 growth forecast to 2.9 percent from 3.4 percent, and its estimate for 2013 to 3.4 percent from 4.2 percent.

Another threat to business activity worldwide is a potentially catastrophic budget standoff in the United States, where automatic tax increases and spending cuts are to take effect in January unless Democrat and Republican lawmakers can come to a compromise, Agence France-Presse reported.

The world’s economic fortunes thus hang in the balance next year, largely dependent on the ability of political leaders in Europe and the U.S. to deal with a crippling combination of unsustainable debt and cramped business activity.

The OECD also downgraded its growth estimates for this year and next for the United States and Japan, with its data showing that the eurozone recession could be deeper than last forecast in May.