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IMF expects Turkey’s economy to expand by around 6% in 2021

IMF expects Turkey’s economy to expand by around 6% in 2021

The International Monetary Fund (IMF) said Monday that it expects Turkey‘s economy to expand by around 6% in 2021 with the country’s COVID-19 vaccine rollout and recovery in trading partner growth.

“Inflation is expected to fall modestly by end-2021…and the current account deficit is expected to fall to 3.5% of GDP, in large part reflecting lower gold imports and a modest recovery of tourism,” it said.

“Employment is expected to continue to recover slowly as the pandemic subsides,” the IMF said in its concluding statement of the 2021 Article IV Mission, which marks the end of an official staff visit to the member country.

Although the novel coronavirus caused a decline in economic activity and employment in the second quarter of 2020, the IMF said the initial policy response to the pandemic led to a sharp rebound in gross domestic product (GDP).

“The early stimulus relied primarily on rapid monetary and credit expansion, including policy rate cuts, cheap and rapid lending growth by state-owned banks, and administrative and regulatory measures designed to boost credit,” the statement said.

“Despite some fiscal space, direct fiscal measures amounted to just 2.5% of GDP, mainly in the form of tax deferrals, but also including employment support,” it added.

The IMF emphasized that these measures helped economic activity rebound strongly in the third quarter to above pre-pandemic levels in Turkey, which is among the few countries estimated to have posted positive overall growth in 2020.

The international financial institution, on the other hand, pointed out to some risks, such as inflation remaining well above target, further weighing on policy credibility, increased dollarization, as well as high imports, financial outflows and large-scale foreign exchange intervention to stem the Turkish lira’s depreciation.

Some other factors that leave Turkey’s economy vulnerable to shocks include low foreign exchange reserves and high external financing needs, according to the IMF.

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