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Country Risk Service Turkey July 2011 Updater

  • Publication Date:July 2011
  • Publisher:EIU
  • Product Type: Report
  • Pages:20

Country Risk Service Turkey July 2011 Updater

Overview

The Economist Intelligence Unit expects the ruling Justice and Development Party (AKP) led by the prime minister, Recep Tayyip Erdogan, to remain in office throughout the forecast period. Political tension is likely to remain high as a result of the suspicion with which the secularist-nationalist elites view the AKP and terrorist attacks by militant Kurdish groups. Turkey's EU accession talks will continue to make slow progress. After falling to 2% of GDP in 2011 from 5.5% in 2009, the budget deficit/GDP ratio is expected to remain around 1.5% a year in 2012, owing to more moderate, but still strong GDP growth. The current-account deficit is forecast to rise to 8% of GDP in 2011 from 6.6% in 2010, as domestic demand growth remains strong and commodity prices will stay high. We expect a gradual decline from 2012 but the deficits will still be worryingly large, given Turkey's heavy dependence on short-term capital inflows to meet its external financing needs.

Key changes from last month

Political outlook

As expected, Mr Erdogan won a comfortable majority but not enough seats to change the constitution without the support of the opposition. In sharp contrast with the tone of his campaign, after the election Mr Erdogan expressed willingness to engage with the opposition to build consensus for reform. We expect tensions with the secularist/nationalist elites, including the main opposition Republican People's Party (CHP) to continue. However, it is possible that the government's relations with the opposition will be better than we are predicting.

Economic policy outlook

Owing to the continued strength of the economic recovery and better than expected central government budget figures in January-May, we have revised our deficit forecast for this year to 2% of GDP (3.3% previously). We expect it to remain around 1.5-2% of GDP in 2012-15 (2-2.5% previously).

Economic forecast

We have made further revisions to our GDP forecasts. We expect growth of 6% in 2011 (5.5% previously) and 4.5% in 2012 (4.7% previously).

  • Turkey at a glance: 2011-15
    • Risk assessment
    • Rating definitions
    • Central scenario for 2011-15: Political stability
    • Central scenario for 2011-15: Election watch
    • Central scenario for 2011-15: International relations
    • Central scenario for 2011-15: Policy trends
    • Central scenario for 2011-15: Fiscal policy
    • Central scenario for 2011-15: Monetary policy
    • Central scenario for 2011-15: Economic growth
    • Central scenario for 2011-15: Inflation
    • Central scenario for 2011-15: Exchange rates
    • Central scenario for 2011-15: External sector
    • Key risk indicators
    • Ratings summary
    • Quarterly indicators
    • International assumptions summary
    • Economic structure
    • Public finances
    • Exchange rates, interest rates and prices
    • Financial sector
    • Current account
    • International liquidity
    • Foreign payment and liquidity indicators
    • External trade
    • External financing requirement
    • External debt stock
    • External debt service
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