Country Report Turkey May 2011

Outlook for 2011-15: Policy trends

Regardless of the outcome of the general election, we expect Turkey to remain an open, largely market-driven economy with adequately prudent public financial management and a well-regulated financial sector. Although Turkey suffered a deeper recession in 2008-09 than most other emerging markets, financial system stress and interest- and exchange-rate volatility were limited. After the election, reforms in areas such as taxation and employment are likely to be attempted. Investment, export and employment incentives may be used more selectively to improve external competitiveness. Privatisation will continue, particularly under the AKP, with the pace depending on market conditions. The privatisation of the three main state banks is on the government agenda, but may not be completed by 2015 owing to the large size of the banks and political sensitivities.

It is unclear whether or not the idea of a "fiscal rule" will be revived; in any case, the government will keep some flexibility to support growth in output and jobs and to distribute patronage, in so far as it is able to do so without damaging investor confidence. Although Turkey's strong budget and economic growth performance in 2010 have reassured investors, the economy is likely to remain vulnerable to sudden shifts in international sentiment because of its large external financing needs.

© 2011 The Economist lntelligence Unit Ltd. All rights reserved
Whilst every effort has been taken to verify the accuracy of this information, The Economist lntelligence Unit Ltd. cannot accept any responsibility or liability for reliance by any person on this information
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