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Turkey’s economic growth to be below potential in 2016 and 2017 – IMF

Turkey’s growth will be below potential in 2016 and this year, the International Monetary Fund said on Friday, citing political uncertainty, strained relations with Europe and insecurity at home and in the region.

The IMF said growth in 2016 would be 2.7 percent, below the government’s official 3.2 percent forecast, rising to just 2.9 percent in 2017, below official targets. It said growth in the medium term was expected to firm to around 3.5 percent.

“The political focus on transitioning to a presidential system, renewed questions over the future of the EU-Turkey relations, and the tense security situation … are expected to prolong the uncertainty, keeping domestic demand subdued,” the Fund said in a statement concluding its 2017 Article IV consultation.

It said inflation was expected to remain above target and that the current account deficit would remain sizeable, although it said that fiscal stimulus and an expected end to Russian sanctions should support growth.

Investor sentiment in Turkey has been hit by a series of Islamic State and Kurdish militant bombings, last July’s failed coup, and uncertainty ahead of an expected April referendum on bolstering the powers of the presidency.

The lira has fallen some 7 percent since the start of the year, on top of double-digit falls in 2015 and 2016, while inflation is edging towards double figures.