"In 2014, [gross domestic product] is expected to grow at 3% driven by public sector support, net exports, and a mild revival of private consumption in the later part of the year," the IMF said.
Without a change in policies, Turkey's future economic performance is likely to be weaker than that of the recent past, the fund said. "Turkey's low domestic savings and challenges related to competitiveness are becoming limiting factors for investment and exports. Thus, on current policies and national saving rates, economic growth is expected to slow to about 3 1/2 % per year in the medium term."
The IMF noted that the lower growth rate would likely limit Turkey's inflation and the deterioration of the current-account deficit, but it would also mean that Turkey's income convergence with advanced economies would be slow, potentially leaving the country in a middle-income trap.
The IMF said a tighter fiscal stance would contribute to reducing Turkey's external imbalance and relieving pressure on monetary policy.
Turkey's annualized current-account deficit narrowed to $48.5 billion in July, or about 6% of gross domestic product, as imports continued to fall amid weak demand.
The IMF stressed that Turkey's monetary policy stance needs to be consistent with the inflation target and the current policy rate isn't compatible with reducing inflation to the 5% target.
Turkey's annual inflation rate slowed to 8.86% in September, the slowest since March, from 9.54% in August due to slowing food prices. The central bank last week held all interest rates steady for the first time since March, halting its five-month easing cycle to shore up the lira and ease inflationary pressures.
