Outlook for 2011-15

• The Economist Intelligence Unit expects the Justice and Development Party (AKP) to win the general election on June 12th and to remain in office throughout the forecast period.
• Domestic resistance to reforms, notably to resolve the Kurdish issue and improve the judicial system, will continue to hinder Turkey's EU negotiations, as will the Cyprus issue and opposition in some EU states to Turkish accession.
• Following a sharp rise in 2009, the budget deficit is expected to ease, despite some election spending in 2011, from 3.6% of GDP in 2010 to about 2% of GDP by 2015.
• We expect the Central Bank of Turkey to start to raise its policy interest rates in the second half of 2011. The inflation outlook seems fairly benign, despite higher food and oil prices, so rates are expected to stay below pre-crisis levels.
• After an expansion of 8.9% in 2010, growth is expected to slow to a still solid 4.5-5% in 2011-12 before picking up to 5-5.5% a year in 2013-15.
• The current-account deficit is expected to reach 7-7.5% of GDP in 2011, before easing gradually to a still large 6-6.5% in 2012-13 and 5.5-6% in 2014-15 as domestic demand growth moderates and commodity prices ease.

Monthly review

• The ruling AKP and the main opposition party, the Republican People's Party (CHP), have overhauled the election candidate lists by deselecting around 50-65% of current members of parliament.
• On April 5th parliament authorised the government to issue decrees with the force of law for a period of up to six months, without having to put bills to a vote in the national assembly. The opposition has strongly condemned the move.
• March saw some fiscal loosening ahead of the election as the central government budget showed a deficit of TL6.1bn (US$3.9bn), after surpluses in the previous two months. But fiscal policy has remained cautious on the whole.
• On April 18th Erdem Basci became Turkey's central bank governor. He was a long-standing deputy governor, which should ensure policy continuity, but he is also seen as being close to the deputy prime minister, Ali Babacan.
• Some of Turkey's bankers have complained about the high level of taxation on the sector and the fact that rising required reserves bear no interest.
• In the fourth quarter of 2010 real GDP grew by 9.2% year on year and by a calendar-and seasonally adjusted 3.6% in quarter-on-quarter terms.
• Despite strong domestic demand growth, a weaker lira and rising commodity prices, consumer price inflation fell to a 41-year low of 4% in March.