Country Report Turkey December 2008

Outlook for 2009-10

• The Economist Intelligence Unit expects the ruling Justice and Development Party (AKP) to remain in office beyond 2010. However, we expect limited progress on Turkey's EU accession bid and economic reform.
• A solution to the division of Cyprus, a major obstacle to Turkish membership of the EU, is not expected before the end of 2010, but the chances of this have improved considerably.
• We expect the government to obtain fresh funding from the IMF to help to maintain investor confidence and meet Turkeys external financing needs.
• The Central Bank of Turkey made a surprise cut of 50 basis points to its overnight borrowing rate in November, but we expect it to hold rates steady until mid-2009 and then cut them only gradually.
• We expect GDP growth to slow from 4.6% in 2007 to 2.5% in 2008 and 1.5% in 2009. A recovery to about 3-3.5% is forecast in 2010.
• Weaker economic growth and lower international commodity prices will reduce the current-account deficit and ease external financing pressures.

Monthly review

• Political manoeuvring has begun ahead of the March 2009 local elections. They will be an important test for the AKP and the prime minister, Recep Tayyip Erdogan.
• The EUs Progress Report on Turkey praised the governments foreign policy initiatives, but pointed to the need to revive the political reform process.
• The Turkish authorities have given a cautious welcome to Barack Obama's victory in the US presidential election on November 4th.
• Turkey has moved closer to signing a new IMF deal, but differences regarding fiscal policy have not yet been resolved.
• After a strong performance up to August, budget performance weakened in September-October. Expenditure rose by 18.5% year on year, while revenue was up by just 1.2%.
• In September the industrial production index declined by 5.5% year on year, after falling by 4.1% in August.
• Consumer price inflation rose to 12% year on year in October from 11.1% one month earlier.
• The Istanbul Stock Exchange index has fallen sharply and the lira has weakened again after a brief recovery.
• The September current-account deficit was the smallest since 2005.

Source: Country Report

This report covers the following industry codes:
SIC Code: 49;60
NAICS Code: 22;52