IMF slashes Turkey growth forecast as investor sentiment sours

The International Monetary Fund (IMF) has revised down its forecast for economic growth in Turkey, as the weaker lira, higher borrowing costs, and elevated uncertainty weigh on investment and consumer demand.

According to the IMF’s latest World Economic Outlook, Turkey’s GDP growth is now projected at 3.5 percent in 2018, but will drop to 0.4 percent in 2019. This is down from the IMF’s April forecasts of 4.2 percent and 4 percent, respectively. 

“Concerns about underlying fundamentals and political tensions with the United States triggered a sharp depreciation of the Turkish Lira (27 percent between February and mid-September in real effective terms), declining asset prices, and widening spreads,” the fund said.

The country’s economy remains “highly vulnerable to sudden shifts in capital flows and geopolitical risks,” it added.

Amid the plunge in the lira, higher energy prices, and high wage growth,  inflation is projected at 15 percent in 2018 and 16.7 percent in 2019.

In Turkey, where significant stress is emerging in bank and corporate balance sheets, the IMF also called for further progress in strengthening bank supervision and enhancing the crisis management framework.

However, Turkish president Recep Tayyip Erdogan has ruled out any assistance from the IMF on October 7, 2018. “Turkey closed the IMF chapter not to open it again,” Erdogan said during his closing speech of the ruling Justice and Development (AK) Party's consultation meeting in the capital Ankara.