Turkey Business Forecast Report Q3 2009

Publication Date	July 2009
Publisher	Business Monitor
Product Type	Report
Pages	65
ISBN Number	1745-0748
Product Code	BMI02156

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Summary

Despite our forecast for a 5.7% real GDP contraction in 2009, we hold to the view that Turkey will be a strategic outperformer in the emerging Europe region over the long run. Its low degree of external leverage will mitigate the crisis risks the country faces during the global recession in 2009 and 2010, while its stable banking sector will better position the economy to take advantage of improving global credit conditions in the latter part of 2010. We also highlight the tremendous potential in the consumer sector, with structural shifts in inflationary and interest rate conditions forecast to provide a positive environment for private consumption. We forecast trend growth in Turkey to average 4.8% in 2011-2018.

Turkish Prime Minister Tayyip Erdogan's May 1 cabinet shuffle is a strong indication of his government's commitment to market reforms. The elevation of Ali Babacan to an enlarged economy portfolio, in particular, signals a broad continuation of economic policies. While we still believe fiscal policy will be expansionary in 2009 and 2010, we hold that core policy foci, including economic liberalisation in the long term, remain on the cards.

Turkey is facing its largest economic contraction in at least two decades, with our real GDP growth forecast revised to -5.7%. Marked draw downs in foreign investment will exacerbate an ongoing capital shortage, which in turn will drive the demand destruction and sharp decline in gross fixed capital formation, pushing the economy deep into recession. While an improvement in the net export component and rise in government consumption should partly offset the downtrend, the potential growth from this will be limited, especially as Ankara will be fiscally constrained by an IMF Stand-By Arrangement.

Turkish Prime Minister Tayyip Erdogan announced a major stimulus package on June 4 to halt spiralling unemployment. Corporate tax rates will be cut to between 2-10% depending on the region, down from a current national rate of 20%. Erdogan also announced plans for a loan guarantee fund for small and medium-sized enterprises. We are cautious about the effectiveness of these measures, especially as global demand conditions are forecast to remain weak through to 2010.

With sales, revenues and profits contracting in 2009, it is unlikely that the tax reduction will do much to bolster corporate positions this year. Moreover, by targeting differential tax rates for varying regions, we are concerned that the programme will only shift investments around the country as opposed to stimulate any new greenfield projects.

Content

Executive Summary
Opportunities beyond The Crisis
Chapter 1: Political Outlook
- SWOT Analysis
- Bmi Political Risk Ratings
- Domestic Politics
- Cabinet Shuffle Bodes Well for Market Reforms
- Turkish Prime Minister Tayyip Erdogan's May 1 Cabinet Shuffle Is A Strong Indication of His Government's Commitment to Market Reforms.
- Domestic Politics Ii
- No Quick End to Pkk Conflict
- We Believe That Momentum Is Gaining toward Some Form of Political Settlement in Turkey's Long-Standing Conflict with The Terrorist Kurdistan Worker's Party (Pkk).
- Tab Le: Politica L Overview
Chapter 2: Economic Outlook
- SWOT Analysis
- Bmi Economic Risk Ratings
- Economic Introduction
- Why Turkey Will Be A Strategic Outperformer
- despite Our Forecast for A 5.7% Real Gdp Contraction in 2009, We Hold to The View That Turkey Will Be A Strategic Outperformer in The Emerging Europe Region over The Long Run.
- Economic Activity
- Capital Shortage & Demand Destruction: A Deep Contraction
- Turkey Is Facing Its Largest Economic Contraction in at Least Two Decades, with Our 2009 Real Gdp Growth Forecast Revised to -5.7%.
- Tab Le: Economic Activity
- Investment Climate
- Imf Deal Still Expected
- While We Maintain Our Core View That Turkey Will Sign A New Imf Stand-by Arrangement in 2009, We Now Caution That There Are High Risks That IT Will Be Delayed beyond The Summer Months.
- Balance of Payments
- Current Account Deficit to Fall to 1.8% of Gdp
- Turkey's Balance of Payments Dynamics Are Set for A Marked Shift in 2009 and 2010 alongside A Rapid Deterioration of Global Demand Conditions.
- Exchange Rate Policy
- Lira: Risks Remain Weighted to The Downside
- The Direction of The Turkish Lira Will Be Closely Correlated with Global Market Momentum through The Short Term, Which Will Add to Upside Risks through Q309.
- Monetary Policy
- Disinflation, Rate Cuts to Slow
- We Have Revised down Our Turkish End-Year Inflation Forecast to 5.0% Y-O-Y to Reflect Expectations of Further Weakness in Domestic and Global Demand in The Second and Third Quarters.
- Tab Le: Monetary Policy
- Regional Outlook: Economic Activity
- Regional Outlook: Banking Sector
- Real Sector Deterioration Is The Key Risk Now
- The Immediate Crisis Risks Facing The Central and Eastern European (Cee) Banking Sector in Q408 Have Subsided Markedly through H109, with The Stabilisation of Global Credit Markets Mitigating The Risks of Capital Flight in The Short Term.
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.
Chapter 4: Special Report
- The Outlook for Global Banking
- Business Environment Rating Outlook
Chapter 5: Business Environment
- SWOT Analysis
- Bmi Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
- Infrastructure
- Market Orientation
- Operational Risk
Chapter 6: Key Sectors
- Consumer Electronics
- Executive Summary
- Turkey's Domestic Consumer Electronics Devices Market, Defined as Including Computing Devices, Mobile Handsets, and Video Audio and Gaming Products, Was Estimated to Be worth around US$7.5bn in 2008.
- Tab Le: Consumer Electronics Overview
- Metals
- Executive Summary
- in 2008, Turkey's Crude Steel Production Rose 4.1% Y-O-Y to 26.8mn Tonnes, but Was down 17.2% Y-O-Y in December.
Chapter 7: BMI Global Assumptions
- Global Assumptions
List of Tables
- Table: Turke Y-Pkk Conf Lict Time Line
- Table: Is Turkey Underrated? Sovereign Ratings & Selected Macroeconomic Ratings
- Table: Turkish Imf Sba Negotia Tio Ns: Key Quo Tes
- Table: Bala Nce of Pay Ments
- Table: Emerg Ing Europe Growth Forec Asts
- Table: Turkey Long -Term Macr Oec Onomic Forec Asts
- Table: Loa N-to-Deposit Ratio S, Selected States
- Table: Loa N Growth (% Chg Y-O-Y), Selected States
- Table: Commercial Banking Business Environment Ratings, Selected States
- Table: Bmi Business and Operational Risk Ratings
- Table: Bmi Legal Framework Ratings
- Table: La Bou R Force Quali Ty
- Table: Europe , Fdi Ann Ual Inf Lows
- Table: Bmi Trade Ratings
- Table: Top Export Destinations
- Table: Turke Y's Met Als Ind Ustr Y, 2006-2013
- Table: Global Assumptions
- Table: Global & Regional Real Gdp Growth
- Table: Commodities