COUNTRY SNAPSHOTS 2017-18
Uncertainties are high
Stronger growth ahead
GDP growth is estimated to have slowed to under 3% in 2016, but is projected to pick up gradually to around 3.75% by 2018. The Turkish economy continues to face geopolitical headwinds and unsettled political conditions, after having weathered a coup attempt in July and engaged in military operations in Syria.
Economic growth is set to strengthen in 2017 and 2018, as an assumed ﬁscal stimulus boosts the economy and the effects of dollar appreciation, declines in energy investment and a substantial inventory correction abate. Employment has risen steadily, although the pace is expected to ease somewhat in 2017. A pick-up in wages will further support growth, offsetting somewhat sluggish external demand.
Uncertainties are high but ﬁscal, prudential and monetary policies are supportive and should spur household consumption from late 2016 onwards. New and generous incentives have been introduced to stimulate business investment, which, however, has stayed subdued so far. For private investment to pick up, it is important to durably restore conﬁdence by implementing highpriority structural and institutional reforms. GDP growth 2013
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Monetary policy has remained very accommodative, consistent with inﬂation running below target. As economic slack is eliminated and pressure on resources emerges, policy rates will gradually increase. Monetary policy needs to tread a cautious path. Some measures of inﬂation expectations have edged down and persistently undershooting the inﬂation target could entrench lowered expectations. On the other hand, sustained low interest rates create ﬁnancial market risks, which may require stronger macro-prudential action. More supportive ﬁscal policy eases the burden on monetary policy. GDP growth
Brexit reduces growth prospects
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The Brexit referendum vote has reduced growth prospects and increased volatility, as reﬂected by the large currency depreciation. Monetary policy has mitigated the immediate impact of the shock by stabilising ﬁnancial markets and shoring up consumer conﬁdence. This projection assumes the UK will operate with a most favoured nation status after 2019, but there is considerable uncertainty about this, which will increasingly weigh on growth, and in particular private investment, including foreign direct investment. Higher inﬂation is projected to hit households’ purchasing power and to reduce corporate margins, weakening private consumption and investment. As growth slows, the unemployment rate is projected to rise. Macroeconomic policies need to be expansionary. Inﬂation is set to exceed the target of 2%, but the monetary policy stance is expected to be unchanged as the inﬂationary impact of currency depreciation should be temporary. The latest government plans released in the Autumn Statement indicate a slower pace of ﬁscal consolidation and some increase in public investment. A more signiﬁcant increase in public investment would support demand in the near term and boost supply in the longer term. With a weak economic outlook, further raises in the minimum wage should be considered prudently.
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Power of prognosis The OECD Economic Outlook
For forward-thinking decision makers
www.oecd.org/bookshop op GDP growth 2015
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OECD Observer No 308 Q4 2016