OECD Upgrades Turkey's GDP 2014 Growth Forecast to 3.3%

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Organization of Economic Corporation and Development (OECD) (Paris, France) has increased its growth forecast for the Turkish economy this year to 3.3% from an earlier estimate of 2.2%. In its bi-annual Economic Survey for Turkey, it said Turkey's gross domestic product (GDP) growth had gained momentum through the first half of the year, with increasing domestic demand and an improving global economy. The OECD retained its 4% economic growth projection for Turkey next year.

The Turkish economy grew 4.3% in the first quarter, due to increased exports and domestic demand; the government's official growth target for this year stands at 4%. Turkey's industrial production rose 3.3% year-over-year in May after a 4.6% rise in April, which signalled a slowing pace in economic growth in the second quarter.

The OECD has called for structural reforms in Turkey to achieve financial stability and inflation curbs to balance growth, or face ongoing volatility and over-dependence on capital inflows. Turkey should rebalance growth through monetary and financial policies that keep inflation, exchange rates and credit levels on sustainable paths, the OECD said.

The main risks to growth are increasing domestic political tensions, geopolitical risks regarding Syria and Iraq, and possible turmoil in financial markets after monetary policy changes in the U.S., according to the report.

"Growth would also be negatively affected, mainly through weaker exports, if geopolitical risks were to intensify in some MENA [Middle East Northern Africa] countries, Russia and Ukraine," the OECD said. "Finally, renewed tensions in the euro area could unsettle financial markets and confidence again, hurting Turkey both through trade and financial linkages."

The OECD said that Turkey should ensure its monetary policy is sufficiently restrictive to better align inflation and inflation expectations with the target.

"Once disinflation is on track, any room for maneuver could be used to help smooth the exchange rate and capital flows," the OECD said. "The authorities could also use foreign exchange purchases to build up reserves, which are not particularly high."

In the report, the OECD projected Turkey's inflation to fall in the second half of 2014, but remain well above 5%. According to Turkey's statistics agency, Turkstat, the inflation rate stood above 9% in June, due to increasing unprocessed food prices. The Central Bank of Turkey expects that foreign demand and net export growth will support disinflation and lead to an improvement in the account deficit in 2014.

The OECD report can be downloaded by clicking this link.

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