The International Monetary Fund (IMF) warned for possible danger of overheating the Turkish economy due to its rapid recovery. According to the IMF, the country also needs to introduce additional fiscal and monetary tightening. According to the institution’s data, after the slowdown in 2016, Turkey’s economy has sharp improvement last year with a stimulus policy and favorable external conditions.
“The economy recovery was so strong that the economy is now facing signs of overheating – a positive output gap, inflation over targets and a larger current account deficit”, says the Turkish mission of IMF. The IMF adds that this increases Turkey’s potential susceptibility to the changing global economic conditions and underlines the need to address the country’s weaknesses.
“Macro-prudential policies must be fully focused on maintaining financial stability and adequate buffers. Targeted implementation of structural reforms will support growth”, said the IMF.
The analyze also shows that the economic growth of the country is 7% in 2017, which is above its potential. The inflation is also higher than the targets set and is expected to remain the same.
The IMF also states that the current account deficit will most likely continue to be above 5% of GDP.
Despite the strong growth of Turkey and the recovery of the tourism sector, continued local demand is on the rise, with higher oil prices expected to lead to a further rise in the current account deficit this year. However, the country’s reserves remain relatively low, covering only about half of Turkey’s external financial needs.
The institution also states that the weaknesses that the economy is exposed to are an increase in external financing needs, a reduction in foreign exchange reserves, a growing reliance on short-term capital inflows and a higher corporate exposure to currency risks.
There are also indications of possible oversupply in the construction sector.