Turkey: 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Turkey
IMF Staff Country Reports, December 26, 2019
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- Turkey: 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Turkey
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Bibliographic details
- Published: December 26, 2019
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781513524641.002
Economic activity and drivers
- Economic growth has since resumed, buoyed by expansionary fiscal policy.
- Rapid credit provision by state-owned banks has supported the recovery.
- More favorable external financing conditions contributed to the rebound.
- The lira recovered as market pressures abated.
External adjustment and current account
- Import compression and a strong tourism season have contributed to a remarkable current account adjustment.
Inflation and monetary policy
- Inflation peaked at around 25 percent—five times the target—in October 2018, driven in large part by high exchange rate passthrough and rising inflation expectations.
- Since the peak, inflation has fallen sharply due to:
- strong base effects,
- relative lira stability,
- a negative output gap.
- Inflation expectations remain well above target.
- The central bank cut policy rates by 1000 basis points since July 2019.
Banking, credit, and financial intermediation
- State-owned banks are supporting rapid credit growth.
- Private banks have cut back on their lending.
- State-owned banks have engaged in a major credit expansion which picked up pace in early-2019.
Key findings and implications
- Resumption of growth is driven by a mix of fiscal expansion and state-led credit growth rather than a private-sector credit revival.
- The sharp decline in inflation reflects a combination of base effects and macroeconomic slack, but elevated inflation expectations pose ongoing risks.
- Rapid credit expansion by state-owned banks suggests a potential shift in credit allocation and financial stability considerations.
International Monetary Fund. Turkey: 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Turkey, December 26, 2019.
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