Near-term macroeconomic prospects continue to improve in the context of higher oil prices and a gradual global recovery from the pandemic shock, but the medium-term outlook remains challenging and highly uncertain. Oil production remains muted, debt and inflation remain elevated, and non-oil activity is expected to recover only gradually. However, continued strong fiscal performance (aided by higher oil revenues), exchange rate stabilization, and a return to positive non-oil growth would contribute to a reduction in the debt-to-GDP ratio this year, easing debt vulnerabilities.
Switzerland has navigated the COVID-19 pandemic well. The pandemic has had major social and economic impacts, but an early, strong, and sustained health and economic policy response helped contain the contraction of activity. Coordinated efforts targeting households and firms stemmed a loss of purchasing power and a rise of unemployment and bankruptcies. Recovery has commenced, but uncertainty and risks remain high, dominated by pandemic dynamics. The rebound should deepen, as vaccination proceeds, containment is eased, and domestic and global demand picks up. Fiscal support has been rightly extended in 2021, and monetary policy remains accommodative. Policies should remain supportive until there are clear signs of sustained recovery; the authorities should expand support if needed. Redirection to fostering green, digital transformation with attention to low-income earners will be needed, including to ensure that prolonged emergency support does not hinder structural changes in the economy.
In Turkey, as in other countries, the human and economic toll of the COVID-19 pandemic has been severe. Thousands of lives have been tragically lost and many livelihoods compromised. The initial policy response to the pandemic—and subsequent sharp growth rebound—set Turkey apart from its peers. Rapid monetary and credit expansion and large liquidity support meant that Turkey was among the few countries to experience positive economic growth in 2020. But these policies also aggravated pre-existing economic and financial vulnerabilities. Higher inflation, increased dollarization, and a large shift in the current account position increased pressure on the lira and gave rise to heavy foreign exchange sales, which led in turn to steep reserve declines from already-low levels. A policy shift in late 2020—mainly towards tighter and more transparent monetary policy and slower credit growth—was both welcome and necessary. But the durability and depth of the shift were called into question in March 2021, following the change in central bank leadership, as the lira weakened markedly and interest rate spreads widened.