Country Report Turkey April 2009

Outlook for 2009-10

• The Economist Intelligence Unit expects the ruling Justice and Development Party (AKP) to remain in office beyond 2010. We expect that, with IMF support, the government will do enough to maintain investor confidence.
• A solution to the division of Cyprus, a major obstacle to Turkish membership of the EU, is not expected before the end of 2010. Negotiations started in September 2008, but have made almost no progress.
• We expect a new IMF stand-by agreement to be put in place in the coming months. It will require the government to adopt a degree of fiscal discipline, but we believe it will have some leeway to support the economy.
• Given the weakness of Turkey's economy, concerns about liquidity, diminishing inflationary pressures and the likelihood of an IMF deal, we expect the Central Bank of Turkey to cut interest rates further in 2009-10.
• We expect GDP to fall by about 4.5% in 2009, before picking up moderately in 2010, but a sharper and more prolonged slump cannot be ruled out.
• Weaker economic growth and lower international commodity prices will reduce the current-account deficit and ease external financing pressures.

Monthly review

• The conservative Justice and Development Party (AKP), led by the prime minister, Recep Tayyip Erdogan, suffered a setback in the municipal elections on March 29th, but remains by far the largest party in Turkey.
• The visit to Turkey of the US president, Barack Obama, has paved the way for a substantial improvement in Turkish-US relations, which have been periodically strained since 2003.
• Talks with the IMF over a new stand-by loan agreement appear to be back on track. The Fund had made a modified set of reform and policy proposals in response to the concerns expressed by Mr Erdogan.
• On March 14th Mr Erdogan announced a limited package to stimulate the economy, comprising mainly temporary indirect tax cuts.
• On March 19th the Central Bank of Turkey lowered its overnight borrowing rate by a further 100 basis points, to 10.5%. This brought rate cuts since October 2008 to a total of 625 basis points.
• Turkeys economy contracted by 6.2% year on year in the final quarter of 2008, the worst performance since the 2001 financial crisis.
• Central Bank foreign-exchange selling auctions held between March 10th and April 1st have helped to steady the lira.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52