May 25, 2024

Global Business Cycle and Monetary Policy



There were two important developments that affected the markets last week. The International Monetary Fund (IMF) lowered its forecasts for global growth in its World Economy Outlook report. The Central Bank of the Republic of Turkey has signaled that it will continue to loosen its monetary policy by lowering both the benchmark interest rate and the lower and upper limits of the interest rate corridor by 50 basis points. 

In its report published in October, the IMF predicted that the growth of the world economy would be 3.5% in 2013. In the April report, the global growth forecast was revised down 0.2 points to 3.3%. The sharp slowdown in countries such as Brazil (-0.5%), France (-0.4%), Italy (-0.4%), England (-0.3%), Russia (-0.3%) was effective in the forecast change.

Despite the decline in growth forecasts, it was emphasized in the April report that significant progress was achieved in ensuring financial stability compared to previous years. Bold decisions taken in Europe in the second half of the year and the postponement of the risk of fiscal cliff in the USA increased the global risk appetite. The excessive expansionary monetary policies implemented in the USA and Japan and the increase in the global risk appetite accelerated the flow of global capital to emerging debt markets.

The global conjuncture predicted by the IMF provides important clues for the 2013 performance of the Turkish economy and markets. Let’s start with the real economy. In a global conjuncture where France, England and Italy are slowing down sharply, Turkey will find it difficult to maintain the momentum it has gained on the export front. It seems inevitable that the contraction in export markets will put downward pressure on Turkey’s growth.

Let’s continue with capital movements. The continued easing of monetary policy by G4 central banks and the increase in the global risk appetite will accelerate the flow of money to developing countries such as Turkey, which are growing at a reasonable pace and whose interest rates are relatively high.
The conjuncture in question creates an opportunity that needs to be managed well for countries such as Turkey that grow mainly with domestic demand and foreign resources. This conjuncture, in which banks and companies provide easy funding from abroad, will enable Turkey to finance its growth with cheaper and longer-term resources. However, abundant and cheap foreign resources pose a significant risk to the basic balances of the economy. 

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