Concerning Turkey’s major trading partners, growth estimate was revised down by 0.2 points for European Union and by 0.3 points for Middle East and North Africa.

The first World Economic Outlook Report of 2013 by the International Monetary Fund (IMF) was released. As you might know, the IMF releases first the technical chapters and later the complete report with core chapters. The latest report seems to have driven the most optimistic picture for the world outlook compared to its precedents. I would like to highlight some points which I think are critical.

Euro area breakup prevented

The report draws attention to two factors that eased short-term risks. First is the decision in late 2012 that prevented the breakup of the Eurozone. As you might remember, European Central Bank declared that it would purchase the sovereign bonds of troubled economies if they fulfill certain conditions. Following the decision cost of sovereign funds diminished and the European Stability Mechanism became operable. Besides, decisions aimed at easing the debt problem of Greece and steps that enable centralized regulation and supervision of the European banking sector were introduced. The second factor the report draws attention to is the decisions of the US that prevented the implementation of the wrong (contractionary) fiscal policy at the wrong, or more fashionably the fiscal cliff.

The report stresses that these policies of the US and Europe eased financial tensions. Yet, there still is a “but” related mainly to Cyprus and Italy: the report, citing these countries, warns that the winds might suddenly change in Europe. The chief of the dangers underscored are that sustaining fiscal tightening will become more difficult for some countries; weak balance sheets; unhealthy loan mechanisms especially in the periphery; and delays in steps that will strengthen the Euro area as an economic and monetary union.

The report does not draw an equally positive picture concerning the short-term real economic activity volume. Growth estimates for 2013 are revised down after October. Though the reduction was as small as 0.2 points, the IMF foresees weaker global growth. For Turkey’s major trading partners, the revision was similar: growth estimate was revised down by 0.2 points for Europe and by 0.3 points for Middle East and North Africa. Yet, the MF estimates that growth will accelerate in the second half of the year.

Growth will accelerate

The emphasis of the report concerning emerging market economies is that most of these, including Turkey, succeeded in lowering credit growth to reasonable levels. Therefore, the report assesses, these countries have circumvented the risk of hard landing. Concerning Turkey, the report foresees a moderate increase in growth and current account deficit. Inflation is expected to decrease, even though it will linger above the target. Unemployment rate will increase at some degree. I did not quote the figures as the forecasts seem to be a little bit outdated. For instance, growth estimate of the repot for 2012 is 2.6 percent. Apart from the figures, however, the forecasts about the “direction” of the addressed macroeconomic variables sound rational.

This commentary was published in Radikal daily on 18.04.2013