Turkey Economic Monitor, May 2018 : Minding the External Gap
A strong policy response - on the back of fiscal buffers, a strong financial system, and favorable external conditions - enabled Turkey to recover from its shock of 2016, with growth accelerating to 7.4 percent in 2017. The outcome of supply constr...
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| Format: | Report |
| Language: | English |
| Published: |
World Bank, Washington, DC
2018
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| Online Access: | http://documents.worldbank.org/curated/en/551541527656096358/Turkey-economic-monitor-minding-the-external-gap http://hdl.handle.net/10986/29918 |
| Summary: | A strong policy response - on the back
of fiscal buffers, a strong financial system, and favorable
external conditions - enabled Turkey to recover from its
shock of 2016, with growth accelerating to 7.4 percent in
2017. The outcome of supply constraints and demand impulse
are reflected in high inflation; a large current account
deficit; and currency volatility. The developments are
weighing on private sector confidence despite the ongoing
boost to sales, employment, and profits. Enabling an orderly
adjustment is important for productivity and potential
output. Turkey has been prone to large economic swings in
the past. The greater the volatility in growth, the more
pronounced is the negative impact on productive investment
and efficiency of resource allocation. The possibility for
monetary policy to respond to adverse external developments
is more challenging. A combination of high inflation (due to
demand pressures, exchange rate passthrough, and higher
production costs) on the one hand, and rising (and positive)
policy rates on the other, creates challenges for a monetary
stimulus in the event of an external shock. This challenge
is exacerbated by the need to cool credit expansion, which
has been above its long-term trend. |
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