2012-10-12 15:48:13 - Recently published research from Business Monitor International, "Turkey Business Forecast Report Q4 2012", is now available at Fast Market Research

Core Views Despite an improvement in Turkey's external environment, we expect to see a sharp decline in economic activity in 2012 owing to domestic and external factors. Sustained tight monetary policy at home will continue to hold back domestic demand and corporate investment, while deteriorating economic data out of the three major global economies (the eurozone, the US and China) will further depress trade and investment flows as well as broader economic confidence. That said, with relatively healthy budget and debt dynamics, the government is in a position to provide a more pronounced fiscal boost to the economy if needed. Turkey's external imbalances have begun to show signs of correcting, with the current account deficit narrowing on the back of

tighter monetary policy and falling energy prices. We expect this process to continue over the course of 2012, but at a gradual pace. As such, we remain wary of Turkey's reliance on short-term foreign capital inflows and energy imports. On the monetary policy front, sustained tightening alongside the fall in global oil prices has helped to weaken inflationary pressure. However, given that headline inflation is still well above the central bank's medium-term inflation target and global financial stresses remain pronounced, we do not foresee the central bank easing monetary policy any time soon. Turkey has begun the process of writing a new constitution to cement its transition towards a civilian-oriented democracy. While there has been some degree of consensus during multiparty talks, we stress that there are substantial political roadblocks ahead that could result in a drawn-out process. Most notably, there are ongoing fears over Prime Minister Recep Tayyip Erdo?an's aspirations to move towards a presidential system of government in order to allow him to stay in control, as well as recurrent disagreements over the Kurdish question and the incompatibility of secularist and Islamist ideologies within the new constitution. Major Forecast Changes We have raised our 2012 real GDP growth forecast slightly from 1.8% to 3.0% on account of the strong economic base established in the final months of 2011, as well as the broad improvement in global liquidity since the end of 2011. We have slightly reduced our forecasts for Turkey's fiscal deficit in both 2012 and 2013 on account of stronger-than-expected revenue data in the first few months of the year. We now expect a shortfall equivalent to 2.1% and 2.5% in 2012 and 2013 respectively, down from 2.5% and 2.9% previously. Key Risks To Outlook The major risk to Turkey's macroeconomic trajectory stems from its external environment. With the eurozone debt crisis once again intensifying at an alarming rate, and economic data out of the US and China disappointing in recent months, there is strong potential for trade and investment flows as well as broader economic sentiment in Turkey to decline significantly from current levels. Moreover, given Turkey's large current account deficit and dearth of foreign direct investment inflows, the country remains susceptible to external shocks and a major outflow of foreign capital. As a result, risks to our growth forecasts are firmly to the downside.


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