The International Monetary Fund on Wednesday projected a sharp slowing in Turkish growth as capital inflows decline on concerns about the country's worryingly large current account deficit Today`s Zaman reported
The IMF said growth would slow to 2 percent in 2012 from 7.5 percent in 2011. The fund urged Turkey to adjust its policies to ensure a soft economic landing.
Turkey expects its current account deficit to soar to 9 percent to 10 percent of gross domestic product this year from 6.7 percent in 2010. But the government expects the deficit to diminish as the economy slows due to global concerns, notably the debt crisis in the euro zone.
"More limited foreign financing would constrain the current account deficit to about 8 percent of gross domestic product and compresses imports," the IMF said in a review of Turkey's economy.
"In line with Turkey's previous capital flow-driven corrections, with fewer imports of key raw materials and intermediates, GDP growth is forecast to be sharply scaled down," the fund added in its annual assessment.
The IMF projected inflation would decline to a still-elevated 6.5 percent, which would erode Turkey's external competitiveness because higher prices make exports more costly.
Turkish data released on Monday showed inflation rose 1.73 percent month on month in November, sharply higher than expected. That raised prospects for double-digit inflation.
The data showed that year-on-year consumer price inflation rose 9.48 percent from 7.66 percent in October and 7.29 percent in November last year.
The IMF sees scope "for cautiously raising the single policy interest rate". The policy rate, the one-week repo, is unchanged at a record low 5.75 percent.
The IMF also urged Turkey to tighten fiscal policy to tamp down domestic demand, slow inflation and offer some protection should capital flows reverse course.
It also urged the authorities to curb current spending, expand the tax base to generate more revenues, and strengthen oversight of joint public-private investments.
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