Country Report Turkey January 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 the government to do enough to avoid a severe economic and financial crisis in Turkey.
• A solution to the division of Cyprus, a major obstacle to Turkish membership of the EU, is not expected before end-2010. Negotiations started in September 2008, but have made almost no progress.
• We expect the government to obtain fresh funding from the IMF to help to maintain investor confidence and meet Turkeys external financing needs.
• Given the continued deterioration in Turkey's growth outlook, concerns about liquidity and the imminent signing of an IMF agreement we now expected The Central Bank of Turkey to lower interest rates further, but only gradually.
• We expect GDP growth to slow from 4.6% in 2007 and an estimated 2.3% in 2008 to 0.5% in 2009. A recovery to around 2% 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

• The AKP has begun to focus on preparations for the local elections on March29th 2009.
• The main opposition party, the staunchly secularist/nationalist Republican People's Party (CHP) has unexpectedly softened its stance on the headscarf issue, presumably to attract some of the AKP's conservative religious voters.
• Turkey, the US and Iraq (including the Kurdish Regional Government) has signed a new tripartite agreement to tackle the Kurdistan Workers' Party (PKK), which has been carrying out attacks in Turkey from bases in northern Iraq.
• Talks with the IMF have continued since the beginning of December and an agreement is expected by early January 2009.
• The Central Bank slashed its key interest rate by an unexpected 125 basis points on December 19th and has continued to take steps to maintain liquidity in the financial markets.
• GDP growth slowed from an already weak 2.3% year on year in the second quarter to just 0.5% in the third quarter.
• Data suggests domestic and external demand weakened further in the final quarter of 2008. Industrial output declined by 8.5% year on year in October, following a 5.2% decline in September.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;49;82;47;1;10;59;39
NAICS Code: 52;22;61;48;11;212;44;31