{Kantakji Group}. Add '11183' Turkey Economic Outlook

FYI

 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 Readers,

 

After mounting anxiety about the prospect of overheating last year, the Turkish economy has slowed down markedly during recent months. This is partly due to deliberate tightening by the authorities but also reflects the increasingly challenging international backdrop. Encouragingly, the slower growth has begun to significantly correct Turkey's main macroeconomic imbalances. The non-oil component of the current account is returning to balance while inflationary pressures are moderating.

·          Economic growth set to decelerate markedly this year. Even though the authorities have likely successfully avoided the much-feared hard landing scenario, growth has been slowing down sharply and will likely undershoot the government's 4% target for the year. More encouragingly, however, the composition of GDP growth will be much healthier with a far diminished reliance on consumption and a positive contribution from net exports.

·         The policy bias will remain somewhat restrictive. The Central Bank has pursued fairly consistent monetary tightening since the second half of last year and this bias looks likely to persist, partly in order to ensure sufficient inflows at a time of elevated external stress. The fiscal account improved unexpectedly last year but the positive trend has been reversed and a marked deterioration in June may trigger additional tightening.

·         The key macroeconomic imbalances are correcting. Although the heavy dependence on energy imports remains a risk, Turkey has benefited from a sharp improvement in the performance of its exports at a time when imports are slowing. The seasonally adjusted non-oil current account deficit is now close to zero. At the same time, last year's inflationary peak seems to have been passed, although continued volatility is possible around a downward trend.

·         External risks remain unusually elevated. Turkey remains vulnerable to external discontinuities, above all in the Euro-zone. The heavy reliance on energy imports constitutes another risk factor. The vulnerabilities in these areas have diminished somewhat and various policy initiatives are now underway to try to correct them further. Nonetheless, external shocks could result in echoes of 2008-2009 even if the room for maneuver of policy makers has improved of late.

 

 

 

Noel Rotap

Economics Department

The National Commercial Bank