Country Report Turkey September 2009

Outlook for 2009-10

• The Economist Intelligence Unit expects the ruling Justice and Development Party (AKP) to remain in office beyond 2010, but tensions with the secularist/nationalist opposition and the military are likely to be destabilising.
• 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 slow progress.
• Although differences between the IMF and the government remain unresolved, we expect a new stand-by accord to be put in place by October to support investor confidence and ensure greater fiscal discipline.
• With inflation projected to be below official targets for 2009 and 2010, we expect the Central Bank of Turkey to lower its interest rates by a further 50-75 basis points by the end of 2009 and keep them low during most of 2010.
• We expect GDP to fall by about 5.5% in 2009, before picking up 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 begun a wide-ranging consultation process about its democratisation plan to try to resolve the Kurdish issue.
• On August 5th the parliament elected a new speaker of the house, Mehmet Ali Sahin, who is considered a moderate.
• Tensions with the judiciary intensified in July over the annual appointments and assignments of judges and public prosecutors.
• Turkey has backed both the EU-backed Nabucco gas pipeline and Russia's South Stream pipeline, which is widely seen as a rival to Nabucco.
• The widening budget deficit has become a source of growing concern. In the first half of 2009 the central government deficit was TL23.2bn (about US$15bn), compared with a small surplus in the same period of 2008.
• The Treasury has had little difficulty in meeting its higher borrowing needs, helped by the risk aversion of domestic banks and a return in global risk appetite.
• After falls of about 20% year on year in January-April, industrial output fell by 17.3% in May and 9.7% in June. Month on month, output rose in March-June.
• Confidence indicators have bounced back since plummeting in late 2008. However, the pace of improvement slowed in May-June and consumer confidence dipped in July.

This report covers the following industry codes:
SIC Code: 15;10
NAICS Code: 23;212