OECD lifts Turkey’s GDP growth estimate

PARIS/ISTANBUL

The Organization for Economic Cooperation and Development (OECD) has revised up its estimate for Turkey’s economic growth in its global economic outlook.

In the interim OECD Economic Outlook, which was released on March 13, Turkey is estimated to have grown at 6.9 percent in 2017. In the organization’s previous report in November 2017, Turkey’s economic growth was estimated to exceed 6 percent in 2017, driven by strong fiscal stimulus and an export market recovery.

Turkey’s GDP is expected to rise by 5.3 percent for 2018 and 5.1 percent for 2019, from 4.9 percent and 4.7 percent respectively.

“Growth in Turkey is projected to moderate from the exceptionally rapid pace seen in 2017 as government stimulus measures fade, but could remain at around 5 percent over 2018-19 given strong labour force growth and improved external demand,” the OECD stated.

The global growth rate is estimated to have risen by 3.7 percent in 2017, the strongest in the last seven years, the OECD announced, mainly driven by a robust outlook among G-20 countries.

“Global GDP growth is estimated to have been 3.7 percent in 2017, the strongest outcome since 2011, with positive growth surprises in the euro area, China, Turkey and Brazil,” the OECD said in a press release.

The OECD also projected to rise of global GDP growth by 3.9 percent for both 2018 and 2019.

The higher forecast was in part due to expectations that U.S. tax cuts would boost economic growth there, it said.

In November 2017, the OECD predicted an increase of 3.6 percent for 2017 and 2019, and a rise of 3.7 percent for 2018.

The OECD stressed that the world economy would continue to strengthen in 2018 and 2019.

“Growth in the U.S., Germany, France, Mexico, Turkey and South Africa is projected to be significantly more robust than previously anticipated, with smaller upward revisions in most other G-20 economies,” it added.

Warning on trade war

Trade tensions are threatening the best global economic growth outlook in seven years, the OECD also warned, adding that four U.S. rate rises are likely this year as tax cuts stoke the world’s biggest economy while Brexit will drag on Britain.

While broadly more optimistic than only a few months ago, the organization warned a trade war could threaten the outlook, and forecast that U.K. growth would lag all G-20 countries due to Brexit uncertainties.

“We think the stronger economy is here to stay for the next couple of years,” acting OECD chief economist Alvaro Pereira told Reuters.

“We are getting back to more normal circumstances than what we’ve seen in the last 10 years.”

Rebounding global business investment would keep global trade growth at about 5 percent this year, the OECD forecast.

However, it said the global economy was vulnerable to an eruption of trade tensions after the Trump administration imposed import tariffs on steel and aluminum, a move that is expected to prompt retaliation from Europe and others.

“This could obviously threaten the recovery. Certainly we believe this is a significant risk, so we hope that it doesn’t materialize because it would be fairly damaging,” Pereira said.

The OECD forecast the U.S. economy would grow 2.9 percent this year and 2.8 percent in 2019, with tax cuts adding 0.5-0.75 percentage points to the outlook in both years.

Against that backdrop, the Federal Reserve would probably have to raise interest rates four times this year as inflation picks up, Pereira said. Previously the OECD had estimated three hikes would suffice this year.

With tax cuts boosting the economy this and next year, the OECD forecast the upper bound of the target federal funds rate could reach 3.25 percent by the end of 2019 from 1.5 percent currently. 

Britain was seen missing out on the global upturn, lagging all other G-20 countries with growth of only 1.3 percent this year. That was higher from a November forecast of 1.2 percent due to the broader global improvement.

With Britain due to leave the European Union next year, its economic growth was seen easing to 1.1 percent in 2019, unchanged from the OECD’s November estimate.

In contrast, stronger growth in France and Germany boosted the outlook for the broader eurozone to 2.3 percent for this year and 2.1 percent in 2019. Previously, the OECD had forecast growth of 2.1 percent and 1.9 percent respectively.

Fiscal easing in Germany’s coalition agreement was seen lifting growth in the euro zone’s biggest economy to 2.4 percent this year (+0.1 percentage point) and 2.2 percent in 2019 (+0.3).