Confuzzled by the IMF’s Turkey forecasts
First of all, I am confuzzled because I have no idea why the figures suddenly made a splash today. The report has been sitting in my harddrive since I received it (not by an insider at the Fund, just through their regular auto email updates system) last week. And suddenly today, a newspiece in Bloomberg as well as several Turkish sources are mentioning the numbers. Weirdly enough, the figures were featured in IMF’s own daily email news update today as well.
Anyway, I had never looked at the tables at the end of the short report, so I became aware of the figures when my economist friend told me about it today. And at first look, I was confuzzled again: Growth forecasts for this year and the next are 8.7 and 2.5 percent. Cuurent account projections, as percent of GDP, are 10.5, 9.8, 9.9 and 10 percent for this year and the next 3 years. Inflation projections are 5.5 and 6.4 percent for 2011 and 2012. Finally, deficit projections are 1.9 and 1.6 percent for this year and the next.
I should say outright that other than a few small objections (or rather question marks), I find the projections rather logical. For one thing, I would not expect growth to be so high this year; this is probably because the projections are a bit outdated and were done before the IMF economists saw the latest leading indicators, which are pointing to a (seasonally-adjusted) flat quarterly growth in the second quarter. But even then, a 7 percent or so growth this year should not surprise.
But even this lower growth figure would be enough to bring the current account deficit to at least near double-digit territory this year. Then, if the economy were really to slow down in 2012, I would expect the current account deficit to be lower than what the Fund is expecting, but not that much. The Fund is basically saying that the current account deficit has jumped to a new plateau, of around 10 percent of GDP, which is what I was saying at yesterday’s Hurriyet / Roubini column as well. Of course, I would also expect a higher fiscal deficit in a low-growth year, not only because Turkey’s finances are quite a bit cyclical, but also because the government would open up the coffers, especially if there is a referendum on the Constitution. Finally, I believe the Funds’ inflation estimates are quite optimistic, at least for this year.
Hurriyet columnist Erdal Saglam, who is an Ankara-based economy journalist with really good connections, is noting in his column today at the daily Hurriyet (Turkish) that the government is pissed off by these figures. My own sources are telling me the same thing as well. If I were them, I would be as well, because if the current account deficit decreased suddenly in IMF’s 2012 projections, I would have said the Fund is expecting a mini financing crisis in Turkey:)…
7 Responses to “Confuzzled by the IMF’s Turkey forecasts”
Do you think Turkey can sustain C/A deficit at these levels mentioned in the report for 4 year? without going into recession or anything? Everything else in the report may realize somehow, or they might be optimistic scenarios but that high C/A deficit? I don't think so..
Nope! But the IMF can't just say we expect a crisis in 2012:) Besides, you never know when the unsustainable deficit will actually become unsustainable. So there is a good chance that we will have a mini crisis in the next couple of years- unless more measures are enacted to ensure a soft landing….
I agree, but the thing is if Turkey will grow %2,5 in 2012, I dont think C/A deficit will be %9,8. We never know, so we will see
These forecasts were probably done well before the G20 meeting. Since then we've had the BRSA measures, domestic lending rates rocketing higher (around 300bp – this is actually a big monetary tightening – policy rates don't matter that much for the domestic economy) and some sense of fiscal tightening in June. If loan growth continues to fall and fiscal policy comes out somewhat tighter, shouldn't the current account come down more quickly, and sustainably, than in these forecasts? Also, won't a weakening TRY inevitably lead to a worsening CAB in the short-run, but may eventually help rebalance the economy and reduce CAB when allied with the other measures?
Exactly; I had told a friend the same thing in an email, but I forgot to mention it in the post, so thanks a lot for bringing that up. It takes a lot of time for these reports to be approved. And besides, even the latest data (industrial production and the like) would have made the IMF change their forecasts.
It also matters how the Fund got these forecasts. If they came from the Fund's MULTIMOD model, as YKB economists are suggesting, I would not make a big deal of them, as the model is not specific to Turkey. But if the forecasts were provided by the Turkey desk, then I would be more careful, keeping in mind the disclaimer that they are a bit outdated.
As for the adjustment: The weak lira will help, but given the Central Bank is not too keen on tightening, the game-changer will be fiscal policy. It will make a big difference if the amnesty money is saved, for example.
Thanks Emre – I totally agree that fiscal and structural reforms are going to be the swing factor in the medium term. In the short run, I think that the considerable upshoot of lending rates on all types of loans (not just consumer loans) actually constitutes a big monetary tightening: though as a result of BRSA measures, rather than CBRT measures. It seems to make a lot of sense that the level of lending rates rather than the policy rate matters to domestic borrowers: if they can effectively control lending rates directly this may well be a much sharper tool for cooling the domestic economy than moving the policy rate…
Sure, the tightening has begun, but rates are still very low compared to a couple of years ago, as I illustrated in a recent column: http://www.hurriyetdailynews.com/n.php?n=job-appl… BTW, I didn't get the job:):):)
Besides, think about someone in the market for a house or car. Even with such big-ticket items, the recent increase in rates making a difference of only a couple of hundred liras per month.
Lending rates are moving in the right direction. We'll get there eventually, but it will take some time…