The International Monetary Fund (IMF) revised up its global economic growth forecast to 4.9% for 2021, according to its World Economic Outlook Update released Tuesday.
The 0.5 percentage points upgrade is a revision from a previous estimate of 4.4% made in its April report.
The IMF said the revision “derives largely from the forecast upgrade for advanced economies, particularly the US, reflecting the anticipated legislation of additional fiscal support in the second half of 2021 and improved health metrics more broadly across the group.”
Overall, advanced economies are expected to expand 4.4% in 2022 from 3.6%, while the forecast on emerging markets and developing economies was revised up to 5.2% from 5%.
IMF cut its 2021 GDP growth forecast for Turkey from 6.0% 5.8% and more importantly its 2022 forecast from 3.5% to 3.3.%. Inflation forecasts are not yet available for individual countries.
Chief Economist Gita Gopinath wrote in a blog that in emerging market and developing economies most measures expired in 2020 and they are looking to rebuild fiscal buffers. Some emerging markets like Brazil, Hungary, Mexico, Russia, and Turkey, have also begun raising monetary policy rates to head off upward price pressures.
While Turkey is not specifically mentioned, some of Gopinath’s comments fit Turkey as if tailor-made
“Further, inflation is expected to remain elevated into 2022 in some emerging market and developing economies, related in part to continued food price pressures and currency depreciations—creating yet another divide”, she commented.
The most noteworthy remark is “Third, long-term inflation expectations (as measured by surveys and market-based measures) remain well-anchored, and factors such as automation that have lowered the sensitivity of prices to changes in labor market slack likely have intensified through the pandemic”.
For Turkey, the well-anchored inflation expectations part is not true, but shows clearly that Turkey’s inflation problem is created by domestic developments, rather than global trends. In other words, at a time when inflation is expected to move to a lower path, this will not be case for Turkey.
As importantly, Turkey’s labor force is not skilled enough to adopt to the Industry 4.0 world. Lack of skilled labor is certain to keep unemployment rates high, as well as thwarting total factor productivity growth.
Finally, it is remarkable that while IMF revised its forecasts upward for 2022 growth for the universe of Developing Economies, Turkey stands out like a sore thumb.
IMF’s longer-term GDP forecast for Turkey is realistic and ought to be taken into consideration by investors. Years of erratic economic management, arbitrary decisions by Erdogan and the hallowing-out of growth-promoting institutions such as an efficient and independent judiciary, sapped Turkey off her growth potential.
PA Turkey staff, IMF website
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