Country Report Turkey October 2014

Country Report Turkey October 2014


Outlook for 2015-19



  • Recep Tayyip Erdogan, who had been prime minister since 2003, became Turkey's directly elected president in August 2014. The Economist Intelligence Unit expects power to shift from government and parliament to the presidency.
  • The president's formal powers are limited, but Mr Erdogan's successor as prime minister, Ahmet Davutoglu, is one of his closest allies, so is likely to facilitate Mr Erdogan's plans to establish a presidential system of government.
  • Turkey is facing major foreign-policy challenges. In particular, turmoil in neighbouring Syria and Iraq is fuelling tensions with Turkey's large Kurdish minority, which could derail the government's fragile Kurdish peace process.
  • Currency weakness will keep consumer price inflation well above the Central Bank's year-end target of 5% (+/-2 percentage points) for some time, requiring monetary policy to be kept tight, despite political pressure to cut interest rates.
  • We forecast that the budget deficit will widen from 1.2% of GDP in 2013 to 2.5-3% of GDP in 2014-15 owing to weaker economic growth. We expect it to decline to 2-2.5% of GDP during 2016-19, as the economy picks up.
  • We expect real GDP growth to pick up from an estimated 3% in 2014 to about 5% a year in 2017-19, driven mainly by stronger exports, but the risk of a prolonged period of sub-par growth has increased substantially.
  • The current-account deficit is forecast to narrow as export growth strengthens and lower global oil prices offset the impact of a gradual pick-up in domestic demand. At 6-6.5% of GDP a year, the deficit may prove difficult to fund.


Review



  • In September Islamic State (IS) released 49 Turkish citizens taken hostage in northern Iraq in June. Turkey has adopted more aggressive rhetoric towards IS since their release but is unwilling to join the US-led anti-IS alliance.
  • Turkey insists that the US-led coalition impose a no-fly-zone, create a safe haven on the Syrian side of the border and direct air strikes against the government of the Syrian president, Bashar al-Assad.
  • IS militants have been fighting for control of the Kurdish-controlled town of Kobane in Syria, near the Turkish border. The Turkish government's refusal to get involved triggered violent anti-IS protests and counter-protests in Turkey.
  • The August goods trade deficit was US$8bn, up from US$7.1bn a year earlier, the first year-on-year increase since December 2013. In January-August 2014 the deficit was US$54.2bn-down from US$67.7bn a year earlier.
  • Total gross foreign debt, which includes public- and private-sector borrowing, rose to US$401.7bn at end-June 2014, from US$389.3bn at end-2013.


Country Report Turkey October 2014
Highlights
Outlook for 2015-19: Political stability
Outlook for 2015-19: Election watch
Outlook for 2015-19: International relations
Outlook for 2015-19: Policy trends
Outlook for 2015-19: Fiscal policy
Outlook for 2015-19: Monetary policy
Outlook for 2015-19: International assumptions
Outlook for 2015-19: Economic growth
Outlook for 2015-19: Inflation
Outlook for 2015-19: Exchange rates
Outlook for 2015-19: External sector
Outlook for 2015-19: Forecast summary
Outlook for 2015-19: Quarterly forecasts
Data and charts: Annual data and forecast
Data and charts: Quarterly data
Data and charts: Monthly data
Data and charts: Annual trends charts
Data and charts: Quarterly trends charts
Data and charts: Monthly trends charts
Data and charts: Comparative economic indicators
Basic data
Political structure

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