In the IMF’s October 2019 Global Economic Outlook Report, the global growth forecast for this year was revised down from 3.2 percent to 3 percent, and from 3.5 percent to 3.4 percent for the coming year. The growth forecast for 2019 is the slowest expected since the 2008 global financial crisis. Trade wars between the US and China and the uncertainty surrounding Brexit remain the most important headlines of the global economic agenda.
In light of this, developments related to monetary policies are crucial now more than ever. The Central Bank of the Republic of Turkey (CBRT) lowered the policy rate by 1,000 basis points to 14 percent over its last three monetary policy meetings. Rate cuts were not limited to the CBRT. The Federal Reserve made rate cuts totaling 75 basis points in the policy rate since the beginning of the year.
The European Central Bank revised its policy interest rate by 10 basis points to 0.5 percent and announced the launch of a monthly 20 billion Euro asset program starting from November. The Bank of England and the Bank of Japan have not changed policy rates since the beginning of the year. Therefore, it is unlikely that the central banks of developed countries will take strong tightening steps in their monetary policies for a while.
On the contrary, we see that central banks prefer expansionary policies against the concerns of a slowdown in the global economy and a possible risk of recession. This can be seen as an advantage for developing countries that need financing for their growth.
Turkey has entered a strong rebalancing period and posted an all-time record high for its current account surplus at USD 5.1 billion in August 2019. Inflation dropped to its lowest level since December 2016 at 8.53 percent in October. Commenting on Turkey’s achievements, Minister of Treasury and Finance Berat Albayrak said, “We will maintain the same decisive stance in the fight against inflation and achieve the year-end target.” Also commenting on the “Advanced, Productive, Indigenous,
Industry Financing Package” for real sector enterprises announced in May – targeting companies with export potential – Albayrak revealed that the loans surged 106 percent, reaching TRY 24.5 billion in October. Minister Albayrak further added that the growth target of 5 percent is expected to be reached in 2020.
As a result of these developments, most of the international organizations and rating agencies revised their growth targets for Turkey.
On November 21, the OECD revised its forecast for Turkey’s GDP to 0.3 percent from -0.3 percent for 2019 and to 3 percent from 1.6 for 2020. Previously, in mid-October, the IMF revised its expectations from -2.5 percent to 0.2 for 2019 and from 2.5 percent to 3 for 2020. Also in October, the World Bank revised its -1 percent forecast for Turkish GDP in 2019 and reaffirmed its 3 percent forecast for 2020. According to the European Commission’s European Economic Forecast Autumn 2019 Report, the forecast for Turkey’s GDP growth in 2019 rose to 0.3 percent from -2.3, while the forecast for 2020 has been revised to 3.1 percent. Moody’s also revised upwards its GDP forecasts for Turkey to 0.2 percent for 2019 and to 3 percent for 2020.