Turkey: Five Key Issues for 2011

March 3, 2011 – No..162

Turkey: five key issues for 2011

The year just ended established Turkey as the OECD’s new economic “dragon”. The country posted the highest growth among its peers with GDP rising by almost 8%. However, after a poor start of the stock index since the beginning of the year, there are questions over how long this dynamic performance will last, leading us to identify 5 key issues for 2011:  Current-account deficit: although uncertainty over its financing rather than its actual size poses a greater risk, both factors will be closely scrutinized throughout the year;  Inflation: while this may not be a cause for concern in the short term, it will still exceed its target in the second half of the year, which should lead to a hike in the policy interest rate;  Public finances: the investment grade rating should be probably achieved in the second half of the year thanks to the tighter control of deficits during an election year;  Unemployment: growth should not significantly reduce the number of jobless due to the structural restraints on both education and the tax system, and very dynamic demographics; 

ECONOMIC RESEARCH Authors: Alexandre PROISY Juan Carlos RODADO

Regional tensions: political stability does not appear threatened. The risks come from trade with Arab-Muslim countries (25% of exports) and the price of oil, which may exacerbate inflation and the currentaccount deficit.

Turkey, the new economic “dragon”

The year just ended established Turkey as the OECD’s new economic “dragon”. The country posted the highest growth among its peers with GDP rising by almost 8%, enabling it to close the door on the 2009 crisis that saw its GDP shrink by 4.7% (Chart 1). Now ranking as the 17th world economy in 2010, according to the IMF, with an estimated GDP of USD 729 billion (Table 1), Turkey’s growth potential heralds considerable economic improvement in coming years.

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Chart 1 GDP Grow th (YoY, %)...