June 24 (Bloomberg) -- Turkey’s economy may contract 5.9 percent this year as exports plunge and companies cut their investments, the Organization for Economic Cooperation and Development forecast.

The global crisis has triggered a “record contraction in private investment,” as demand in Europe for Turkish-made cars and machinery dries up, the Paris-based OECD said in a report today. Exports will probably fall 12 percent this year, it said.

The economy may expand 2.6 percent next year, helped by interest rate cuts from the central bank and government stimulus measures including tax cuts and subsidies for business, the OECD said. To sustain growth, the government must convince investors that it will keep spending under control, it said.

“A new Stand-By Agreement with the International Monetary Fund would also help by providing a reliable funding source and credible monitoring,” the report said.

Turkey has delayed signing a IMF loan agreement since the expiry of its last $10 billion accord in May 2008. Ministers say the fund is seeking to impose budget-tightening measures that are the opposite of the policies other OECD countries have adopted to soften the impact of the global recession.

Turkey’s government agrees with IMF forecasts that the economy will shrink about 5 percent this year, Referans newspaper reported today, citing unidentified officials. The World Bank this week predicted a 5.5 percent contraction.

The government will announce revised budget targets after first-quarter growth figures are published on June 30, Referans said. The current target is for a deficit of 48 billion liras ($31 billion), or about 5 percent of economic output.

The OECD also forecast year-end inflation of 6.3 percent this year, falling to 5.9 percent next year. Inflation was 5.2 percent in June.

To contact the reporter on this story: Ben Holland in Istanbul at bholland1@bloomberg.net.

Last Updated: June 24, 2009 04:30 EDT