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.
• After a sharp rise in 2009, the budget deficit is expected to ease, despite some election spending this year, from an estimated 3.6% of GDP in 2011 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 estimated expansion of 8.1% 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 expected to remain at current high levels of 6-7% of GDP in 2011-12, as domestic demand is expected to be strong and commodity prices have risen. A moderate decline is forecast in 2013-15.

Monthly review

• Twenty-seven parties will run in the June 12th election, but only three or four will enter parliament owing to the threshold of 10% of the vote.
• The government has come in for criticism over the detention of several journalists in early March in criminal investigations into civilian/military circles for allegedly plotting against the AKP in the early 2000s.
• In political terms, the government's response to the popular uprisings in the Arab world has differed from country to country. It is opposing international intervention to halt the repression in Libya.
• Turkey's banking regulator has taken measures to support efforts to curb the growth of bank credit and check the increase in the current-account deficit.
• The central government budget was in surplus in January-February 2011, after a large deficit in December 2010 caused by a surge in government spending.
• Economic activity remained strong in early 2011, despite steps to curb credit growth, some financial market volatility, rising oil prices and the potential impact of the Arab uprisings on capital flows, business sentiment and trade.
• In February consumer price inflation slowed for the fifth consecutive month, to a fresh 41-year low of 4.2% year on year.