The New York Times reported that Turkey is now doing better economically than many of the European Union countries that said Turkey was not strong enough to become a member of the Euroclub. And UBS advised banks to become “somewhat more like Turkey” in their debt profiles. So what’s going on? Oxford Economics sheds some light on on the topic in this complimentary download of its latest monthly Economic Forecast for Turkey.
Year-on-year GDP growth probably exceeded 12% in Q1, reflecting both a very significant recovery over the last year and comparison with a dismal period in 2009.
- And with seasonally adjusted industrial output continuing to rise steadily in April, a robust manufacturing PMI survey in May and accelerating bank lending, there must be a chance that our 2010 GDP growth forecast of 6.1% could be exceeded. Indeed the IMF has raised its forecast to 6.25%, while the government has pushed its estimate up into the 6-7% range.
- But the fact that the recovery has been overwhelmingly domestically driven carries some risks. The current account deficit is already on course to be much bigger than last year and there is the danger that, if the domestic economy remains buoyant over the next few quarters while its key export market, the EU, stays sluggish, the deterioration could be more substantial than the markets currently expect (particularly as the TRY is now relatively uncompetitive).
- In recent months this has not affected the TRY, which has strengthened against the sliding EUR. However, large portfolio capital
inflows could go into reverse if the external deficit starts to be perceived as a problem; particularly if investors also decide that the
central bank is keeping monetary policy too loose for too long.
- However, if these risks can be avoided (and the political situation stays reasonably calm), then the economic outlook should remain
positive in 2011 and beyond.