Country Report Turkey March 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 avoid a severe economic crisis.
• 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, helping to prevent a sharp rise in Turkey's public debt/GDP ratio.
• 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 2% 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 government has promised to renew its efforts to introduce a new constitution with cross-party consensus after the March 29th local elections.
• The prosecution's case has suffered major setbacks in the Ergenekon affair.
• A heavy tax fine on the Dogan media group has sparked controversy, increasing political tensions ahead of the local elections.
• Efforts to normalise Turkish-Armenian relations have intensified since the beginning of the year, raising hopes of breakthrough in 2009.
• Negotiations with the IMF with a view to signing a new stand-by loan have not yet been concluded. Differences between the two sides remain unresolved, apparently over the parameters for fiscal discipline.
• According to Ministry of Finance budget data up to January, Turkey's fiscal performance has weakened in recent months.
• The Central Bank of Turkey reduced interest rates by a further 150 basis points on February 19th, thus continuing to cut rates more rapidly than anticipated.
• Industrial production fell by 17.6% year on year in December 2008, after falls of 6.8% and 13.3% in October and November respectively.
• The rate of unemployment rose to a record 12.3% in November, compared with 10.1% one year earlier.

Source: Country Report

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