Turkey Business Forecast Report

Q4 2009

Publication Date	September 2009
Publisher	Business Monitor
Product Type	Report
Pages	60
ISBN Number	not applicable
Product Code	BMI02731

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Summary

Heading Into Recovery With the pace of real GDP contraction in Turkey slowing sharply in Q209 and leading indicators all showing a marked improvement through the summer, our view that H109 was likely the trough of the recession is playing out. In the latest Turkey Business Forecast Report we focus on the recovery prospects for the economy, underlining our core view that Turkey will be among the best performing emerging European economies in 2010 and beyond. Turkey will particularly benefit from a strong and stable banking sector, which will help to spur credit growth at a time when many peer economies continue to deleverage.

We expect Turkish Prime Minister Tayyip Erdogan to push forward on policies to liberalise cultural restrictions on ethnic Kurds through Q409 and 2010. Though this is likely to come up against strong dissension from opposition parties in parliament, we maintain that the military and national security council's support for the 'Kurdish Initiative' will help to propel momentum for the policy in the short term. We stress though, that cultural reforms should not be conflated with a policy of d?(C)tente with the separatist Kurdistan Workers' Party (PKK), and so we maintain our core view for the long-standing conflict in the south-eastern part of the country to continue for the time being.

While we hold to our -6.2% real GDP growth forecast for Turkey in 2009, we now highlight that there are upside risks. Stronger than expected bounces in industrial production and business confidence through to July suggest that investment is recovering, while Germany's push out of recession in Q2 is a positive leading indicator for trade in the second half of the year. Our view that Turkey will be a regional outperformer appears to be playing out and we forecast the economy to expand by 3.4% in 2010, above most other major European countries.

The pro-business Turkish government has been proactively working to move the country toward EU membership. In that vein, it has instigated a number of key institutional reforms that have helped to harmonise the country's business regulatory framework to international standards while also significantly opening the country to foreign investors. While problems remain, including corruption at the local level and copyright infringement, we believe that the legal framework established in recent years should go a long way to help to alleviate these issues over the long term.

Content

Executive Summary
Heading Into Recovery
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- ???Kurdish Initiative' To Gain Momentum
- We expect Turkish Prime Minister Tayyip Erdogan to push forward on policies to liberalise cultural restrictions on
- ethnic Kurds through Q409 and 2010
- Table: Politica l Overview
- Foreign Policy
- Turkish-Armenian Relations: Prospects To Improve
- The timeline set by Turkey and Armenia on August 31 to establish bilateral relations and reopen their common border
- marks a significant step forward in the relationship between the two countries
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Upside Risks To Our 2009 Growth Forecast
- While we hold to our -6.2% real GDP growth forecast for Turkey in 2009, we now highlight that there are upside risks
- Table: ECONOMIC ACTIVITY
- Fiscal Policy
- Manageable, But Watch For Displacement Risks
- We forecast the Turkish general government fiscal deficit to total 6.9% and 5.2% of GDP in 2009 and 2010 respectively
- Table: FISCAL POLICY
- Balance Of Payments
- Balance Of Payments Dynamics To Normalise In 2010
- We hold to our core view for Turkey's current account shortfall to widen over the medium term, with the deficit forecast
- to reach 2.4% of GDP in 2010, up from 1.8% in 2009
- Table: CURRENT ACCOUNT
- Monetary Policy
- Rate Decision: Another 50bps Cut Ahead
- We forecast the Central Bank of the Republic of Turkey to cut its policy rate down to 7.00% by end-year, with the
- monetary policy bias likely to remain toward loosening through to mid-2010
- Table: MONETARY POLICY
- Banking Sector
- Among The Best In CEE
- Our long held outlook that the Turkish banking sector was among the most stable in emerging Europe and well
- positioned to ride out the global recession, continues to hold true
Chapter 3: 10-Year Forecast
- The Turkish Economy To 2018
- Convergence To Remain In Play 2013-2018
- We retain a positive view on the long-term convergence prospects for Turkey, with real GDP growth expected to
- continue outperforming the eurozone through to the end of our 10-year forecast period
- Table: Long -Term Mac roeconomic Forecasts
Chapter 4: Special Report
- The Fate Of ???Chindia'
- Overview
- Although China and India will continue to grow during the global recession of 2009-2010, they are not immune to
- the downturn, and face a number of risks in the near term
- China And India SWOT
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- TABLE: BMI BUSINESS AND OPERATIONAL RISK RATINGS
- Institutions
- TABLE: BMI LEGAL FRAMEWORK RATINGS
- Infrastructure
- TABLE: LABOUR FORCE QUALITY
- Market Outlook
- Table: Europe, FDI Annual Inflows
- TABLE: BMI TRADE RATINGS
- TABLE: TOP EXPORT DESTINATIONS
- Operational Risk
Chapter 6: Key Sectors
- Tourism
- Executive Summary
- The most recent data are for Q109 and indicate a fall in foreign visitor arrivals (excluding Turkish citizens residing
- outside the country) of about 2% compared with the same period a year earlier
- Table: Tourism Indust ry ??