Country Forecast Turkey October 2017 Updater

Country Forecast Turkey October 2017 Updater

  • October 2017 •
  • Report ID: 325755

  • The intense political instability that followed the failed coup in July 2016 has eased partially since the approval in a referendum in April 2017 of a set of constitutional changes designed to replace Turkey's parliamentary system of government with an executive presidency. However, the narrow referendum vic-tory and allegations of vote fraud have deepened social and political divisions.
  • The presidential reform, which is due to come into effect after the next presidential and parliamentary elections, in 2019, will further undermine Turkey's fragile democratic institutions and governance structures. It provides few checks on the powers of the president and moves the country closer to one-man rule.
  • The Justice and Development Party (AKP) has enjoyed 15 years of single-party rule, and for most of that period political and government effectiveness have improved. However, since 2013 economic policymaking institutions have become increasingly politicised. In response to the failed coup in 2016 the government has carried out an extensive purge of public-sector personnel, which risks undermining institutional capacity.
  • Since the failed coup Turkish foreign policy has been heavily conditioned by the domestic political goals of the incumbent president, Recep Tayyip Erdogan, notably his push to establish a presidential system of government. This has resulted in a marked deterioration in Turkey's relations with its Western allies.
  • Real GDP growth slowed from an annual average of 7.4% in 2010-15 to 3.3% in 2016, owing in part to the disruption to the economy from the failed coup, but also to faltering foreign capital inflows amid expectations of tighter global liquidity. A recovery began in the fourth quarter of 2016, supported by government stimulus measures, political pressure on banks to extend credit and a pick-up in global demand. The Economist Intelligence Unit expects growth to accelerate to an estimated 5.5% in 2017 and to average 4.4% in 2018-21.
  • We estimate that the Turkish lira will average TL3.61:US$1 in 2017, a fall of about 16% compared with 2016. From 2018 we forecast that the exchange rate will remain broadly stable in real terms, depreciating mildly in nominal terms, to an average of TL4.1:US$1 in 2022. In response, we expect the Central Bank of Turkey to have to keep a tight monetary policy stance throughout 2018.
  • We expect the current account to widen moderately and remain sufficiently large to make it difficult for Turkey to meet its external financing needs if global liquidity is constrained and investor confidence deteriorates.


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Country=Turkey Date=201710 Publisher=TheEconomistIntelligenceUnit Price=1000