Turkey
Date: 10 May 2012
The event will be held in Ankara , Turkey , with the participation of distinguished participants from academia, government, civil society, international organizations, and the press. The list of well known participants making opening remarks, presentations and commenting on the publication includes:
Güven Sak
Managing Director of TEPAV
Muhammad H. Malik
Economic Affairs Officer
Macroeconomic Policy and Development Division
United Nations Economic and Social Commission for Asia and the Pacific
Country briefing note <download pdf file>
After achieving high growth rates in 2010 and 2011, economy is projected to slow down in the current year
• The economy of Turkey , which is comparatively more open than most other economies in Asia due to its strong trading links with the European Union countries, contracted sharply in 2009 due to the global economic crisis.
• However, a sound macroeconomic policy and reforms implemented in the previous years helped to limit financial system stress by keeping the balance sheets of banks and households strong, which successfully contained interest and exchange rate volatility. The implementation of a flexible policy response in terms of relaxation of fiscal, monetary and financial policies also contributed to the strong economic recovery.
• After growing at 9% in 2010, GDP expanded by 8.5% in 2011, driven by strong private investment and consumption. Domestic demand increased at a rapid rate, financed by loan growth made feasible by historically low interest rates.
• However, even though the Turkish economy remains relatively more robust, it is not immune to stress in the international financial markets due to its high current account deficit, which has made the country dependent on external financing and thus exposed to fluctuations in global liquidity cycles.
• Because of its stronger linkages with the European economies coupled with a weaker global outlook and signs of slowing demand at home, GDP growth in Turkey is projected to slow to 3.2% in 2012.
Inflationary pressure remains strong
• In Turkey , inflationary pressure remained strong. Average inflation was 6.5% in 2011 as compared to 8.6% in the previous year. While inflation fell in 2011 but it was still high, partly due to a substantial depreciation of the Turkish lira and indirect tax increases announced in October 2011. Inflationary pressures increased sharply towards the end of the year when monthly inflation reached double digit in December 2011.
• This trend has been continuing since the beginning of 2012. Monthly inflation remained double digit during the first three months of 2012. However, with GDP growth moderating and commodity prices facing downward pressure, inflation is expected to come down later in the year.
Eased monetary policy maintained to support growth
• The central bank of Turkey has kept the country's key policy rate low and partly reversed recent hikes in the banks' required reserve ratios for long-term liabilities. It is being cautious about pursuing a tightening monetary policy due to the highly uncertain global environment and the expected decline in economic growth of the country in 2012.
Budget deficit has been falling over the last two years
• Turkey posted an improvement in its fiscal performance. The country's budget deficit, which increased sharply in 2009, eased to 1.4% of GDP in 2011 from 3.6% in 2010.
• The economic policy programme of the Government presented to the Parliament in July 2011 called for a fairer and simpler tax system, with an increase in the proportion of tax revenue coming from direct taxes. The Government intends to keep fiscal policy tight and is looking to the private sector to drive economic growth.
Large current account deficit raises concerns
• In Turkey , higher commodity prices and credit fuelled domestic demand, which outstripped domestic supply, resulted in a rapid expansion of imports. As a result, the country's current account deficit rose to 10% of GDP in 2011.
• Sustainability of such a large deficit raises concerns about its financing given ongoing global financial volatility. A sudden reduction or reversal of capital flows could have serious repercussions for the Turkish economy.
• Even though the Turkish lira depreciated substantially against major currencies in 2011, an improvement in the country's external account is likely to be gradual in the year ahead due to expected weaker global demand, and technical constraints on import substitution. The Government plans to tackle the services current account deficit problem by promoting innovation, domestic production of intermediate goods and the use of alternative energy sources.
• Factors behind the decline of the Turkish lira were the country's large current account deficit and low interest policy.
Policy brief: Living with high commodity prices <download pdf file>