Nawaf Y. Husein
Faculty Member
Msc, CRP , CLBB
Saudi Training Society Member
Institute of Banking
Saudi Arabian Monetary Agency ( SAMA)
P.O.Box : 10820 Riyadh 11443 Saudi Arabia
Tel : + 966 1 463 3000 Ext. 3825
Fax: + 966 1 466 2368
Mobile : + 966 55 48 44 828
SKYPE : abuhejleh2
Dear everyone,
TURKEY ECONOMIC OUTLOOK
Looking For the Brake Pedal
Following a spectacular rebound from the sharp economic contraction it experienced in 2009, Turkey has entered the ranks of economic star performers globally. GDP growth in 2010 attained 8.9% and the pace is unlikely to have slowed down much this year either due to a fairly permissive policy stance. This impressive growth has taken place at the cost of sharply deteriorating external balances, however, and overheating concerns have triggered regulatory interventions. Policy tightening in the second half of the year is necessary for a more sustainable growth pattern going forward. The main uncertainty now has to do with the pace of this tightening.
· Growth prospects remain favorable. Even though headline growth rates are virtually certain to come down from the exceptional figures recorded during the post-crisis rebound, Turkey's performance looks set to remain strong. Underpinned by general macroeconomic stability and favorable demographics, growth is expected to remain in the 5.9-6.4% range in the near- to medium-term. Our baseline projection for this year is 5.9%.
· Policy tightening is necessary. Both the monetary and fiscal stances are too permissive for the current stage in the economic cycle and overheating has emerged as the principal policy concern. Mounting inflationary expectations will likely force the Central Bank to push up interest rates in the second half of the year, marking a shift away from the current focus on increased reserve requirements. Gradual fiscal tightening is likely after the AKP's third successive election victory.
· The current account deficit is the main source of vulnerability. The strong performance of the Turkish economy vis-à-vis its trade partners, along with high commodity prices, has led to a widening external deficit. A loose fiscal policy and a rapid pace of bank credit growth have contributed to the deterioration, which has been further amplified by the oil price shock. Problematically, the quality of financing of the deficit has deteriorated. Low interest rates have caused the Lira to depreciate and the downward pressures are likely to persist in the near term.
· Inflation set to edge up again. After a welcome respite in recent months, the Central Bank expects consumer price inflation to reach 6.9% by the end of the year. This will necessitate further policy tightening but should ultimately give way to a more benign inflation outlook in 2012 and beyond. Timely tightening is essential so as to anchor inflationary expectations at a historically low level.
Best regards,
NCB Economics Department
PO Box 3555, Jeddah 21481
Telephone: +9662646-3232 FAX: +9662644-9783
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