Country Report Turkey November 2009

Outlook for 2010-11

• The Economist Intelligence Unit expects the ruling Justice and Development Party (AKP) to remain in office beyond 2011, but tensions with the secularist/ nationalist opposition and the military are likely to be destabilising.
• Turkey's EU negotiations will continue to be hindered by domestic resistance to reforms, opposition to membership in some member states and the Cyprus issue.
• We expect a new IMF stand-by to be put in place, but not until 2010, as global risk appetite has revived and Turkey's external financing needs have eased.
• The budget deficit is expected to widen to about 6% of GDP in 2009-10, before easing to a still large 4.5% of GDP in 2011.
• With inflation projected to be below official targets for 2009 and 2010, we expect the Central Bank of Turkey to keep interest rates low in 2010-11.
• We expect GDP to fall by about 6% in 2009, before picking up in 2010 and 2011, but growth will be well below the average of 6% in 2004-08.
• We expect the recovery in economic growth and international commodity prices to push up the current-account deficit from its currently low level, but it should remain well below the levels reached in 2005-08.

Monthly review

• The European Commission's annual Progress Report on Turkey's accession process published on October 14th was a mix of positives and negatives.
• Celebrations in the south-east to greet Kurdish militants returning from Iraq have caused tension, and may slow the government's Kurdish initiative.
• Allegations regarding a military plan to discredit the AKP resurfaced in late October, raising tensions with the Turkish Armed Forces (TSK).
• On October 10th Armenia and Turkey signed protocols aimed at establishing diplomatic ties and opening the borders between the two countries.
• On October 5th the prime minister, Recep Tayyip Erdogan, was quoted to the effect that the issue of the IMF's demand for an independent revenue administration had been solved, and that he was looking forward to an agreement.
• On October 15th the Central Bank cut its overnight borrowing rate from 7.25% to 6.75%.
• Economic activity has recovered only partly. Industrial output has edged up only slightly in month-on-month terms since April.
• The improvement in confidence indicators, which plummeted in late 2008, petered out in the third quarter of 2009.

This report covers the following industry codes:
SIC Code: 37;1;60;70
NAICS Code: 336;11;52;72

• Highlights
• Outlook for 2010-11: Domestic politics
• Outlook for 2010-11: In focus
• Outlook for 2010-11: International relations
• Outlook for 2010-11: Policy trends
• Outlook for 2010-11: Fiscal policy
• Outlook for 2010-11: Monetary policy
• Outlook for 2010-11: International assumptions
• Outlook for 2010-11: Economic growth
• Outlook for 2010-11: Inflation
• Outlook for 2010-11: Exchange rates
• Outlook for 2010-11: External sector
• Outlook for 2010-11: Forecast summary
• The political scene: Turkey's annual Progress Report contains no surprises
• The political scene: In focus
• The political scene: Court cases against the DTP could derail the initiative
• The political scene: Allegations of military plans against the AKP resurface
• The political scene: Rapprochement with Armenia moves ahead
• The political scene: Turkish-Israeli relations are tense again
• Economic policy: An IMF stand-by accord is still on the agenda
• Economic policy: The draft 2010 budget is submitted to parliament
• Economic policy: The budget deficit widened in September
• Economic policy: The Central Bank cuts rates and reserve requirements
• Economic performance: The recovery in economic activity is looking weak
• Economic performance: Industry edges up slightly month on month
• Economic performance: Automotive output falls sharply in September
• Economic performance: Pick-up in confidence peters out
• Economic performance: Increase in agricultural work keeps unemployment down
• Economic performance: Inflation remains subdued in September
• Economic performance: Bond yields and interest rates fall further
• Economic performance: Credit growth may be quickening
• Economic performance: Share prices rise further and the lira stabilises in October
• Economic performance: Tourism revenue keeps the current account in surplus
• Economic performance: Foreign-exchange reserves have stabilised
• Data and charts: Annual data and forecast
• Data and charts: Quarterly data
• Data and charts: Monthly data
• Data and charts: Annual trends charts
• Data and charts: Monthly trends charts
• Data and charts: Comparative economic indicators
• Basic data
• Political structure