Country Report Turkey January 2011


Outlook for 2011-15

  • The Economist Intelligence Unit expects the Justice and Development Party (AKP), boosted by victory in the constitutional reform referendum, to win the 2011 election and 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.
  • After a sharp rise in 2009, the budget deficit is expected to ease during the forecast period to 2.5-3% in 2013-15. A smaller primary surplus (excluding interest payments) is expected in 2011 as a result of some election spending.
  • We expect the Central Bank of Turkey to start to raise its policy interest rates in late 2011. As the inflation outlook seems fairly benign, despite recent sharp food price increases, we expect rates to remain well below pre-crisis levels.
  • After an estimated expansion of 8% in 2010, growth is expected to slow to a still solid 5-5.5% a year in 2011-15, driven by strong domestic demand and a pick-up in exports to key European markets from 2013.
  • The current-account deficit is forecast to rise from a six-year low of 2.3% of GDP in 2009 to average about 5.5-6% a year in 2010-15, as domestic demand is expected to be strong and commodity prices have risen compared with 2009.

Monthly review

  • The chairman of the main opposition party, the Republican People's Party (CHP), Kemal Kilicdaroglu, who was elected in May 2010, consolidated his position at an extraordinary party congress on December 18th-19th.
  • In December the judiciary launched an investigation into the pro-Kurdish Peace and Democracy Party (BDP), which could lead to a lawsuit to try to close the party and ban its leaders from politics.
  • The US administration has sought to limit the damage to its ties with Turkey over the publication of confidential diplomatic cables on Wikileaks.
  • A combination of loose global liquidity, strong capital inflows, rapid credit growth, strong domestic demand and a large current-account deficit have forced the Central Bank of Turkey to alter its monetary policy stance.
  • The budget deficit for January-November 2010 was TL23.5bn (US$15.7bn), compared with TL46.2bn a year earlier, thanks to strong tax revenue growth.
  • GDP growth slowed sharply in the third quarter. It grew by 1.1% quarter on quarter and by 5.5% year on year.
  • The lira and share prices weakened in November-December.
© 2011 The Economist lntelligence Unit Ltd. All rights reserved
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