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Turkey Country Risk Report Q1 2016

  • December 2015
  • -
  • Business Monitor International
  • -
  • 43 pages

Core Views

Relative to the past decade, we expect slower, more balancedgrowth in the next decade on the back of less abundant foreigncapital inflows and slower domestic credit growth.Turkey faces a challenging foreign policy environment amidstheightened regional tensions and rising external security risks asthe government attempts to cement its role as an economic andpolitical power in the region.With the Justice and Development Party regaining its parliamentarymajority in the November 2015 general election, Turkey will operateunder a de-facto executive presidential system, with negativeimplications for institutional quality and government checks andbalances.A collapse of the government’s ceasefire with the Kurdish separatistPKK party is a major step back for the country, weighingon growth potential.While the government’s debt load is low by regional standards, theprivate sector’s rampant external borrowing in previous years hasgreatly increased macroeconomic risks.Despite cheaper oil, Turkey’s current account deficit will remain largeand a major macroeconomic vulnerability. Turkey will remain relianton short-term foreign capital inflows to cover the sizeable currentaccount shortfall, leaving it prone to tightening global liquidity andshifts in international risk sentiment.A dovish central bank will keep inflation above target and ensure avolatile growth trajectory.

Table Of Contents

Turkey Country Risk Report Q1 2016
Executive Summary 5
Core Views5
Key Risks 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Index 7
Domestic Politics 8
AKP Win Positive For Near-Term Stability, But Risks Remain Prominent8
The ruling AKP's surprise restoration of its parliamentary majority in the November 1 election will be positive for financial markets and
economic growth over the coming months, as its majority is conducive to near-term stability
TABLE: POLITICAL OVERVIEW8
Foreign Policy 10
Major Escalation To Be Avoided After Turkey's Downing of Russian Jet10
An uncontrolled escalation is highly unlikely following Turkey's downing of a Russian fighter jet on November 24, although it has sparked
a diplomatic crisis and will complicate US-led efforts at building a cohesive strategy in the fight against Islamic State
Long-Term Political Outlook 11
Structural Changes To Continue11
Turkey's moderate Islamist Justice and Development Party will continue to press ahead with divisive reforms to the country's political
and social system for the foreseeable future, and risks creating an increasingly and unsustainably polarised society
Chapter 2: Economic Outlook 15
SWOT Analysis 15
BMI Economic Risk Index 15
Economic Growth Outlook 16
Political Stability No Panacea For Growth16
While the November 1 general election result was positive for Turkey's short-term growth outlook, macroeconomic headwinds and policy
risks remain prominent and we maintain a below consensus growth outlook for 2016 and 2017
GDP By Expenditure Outlook 18
TABLE: GDP GROWTH FORECASTS18
TABLE: PRIVATE CONSUMPTION FORECASTS 18
TABLE: GOVERNMENT CONSUMPTION FORECASTS19
TABLE: FIXED INVESTMENT FORECASTS19
TABLE: NET EXPORTS FORECASTS19
External Trade and Investment Outlook 20
Is Rebalancing For Real This Time?20
Turkey's accelerating pace of external rebalancing over Q315 does not appear sustainable given weak export performance,
deteriorating external competitiveness, strong domestic credit growth and a dovish domestic monetary policy outlook
Monetary Policy 22
Monetary Policy Still Precariously Dovish22
The Central Bank of Turkey's planned simplification of its complex monetary framework will fall short of expectations and is unlikely to
lead to tighter overall policy stance, which will weigh on the lira as the Fed begins hiking rates
Fiscal and Debt Outlook 24
Risks Lie In Private, Not Public Sector Balance Sheet24
Policy continuity under Turkey's AKP implies that the government balance sheet will remain strong and sovereign risks low, although the
externally leveraged private sector remains the most salient macroeconomic risk
TABLE: MAIN REVENUE and EXPENDITURE CATEGORIES24
Chapter 3: 10-Year Forecast27
The Turkish Economy To 202427
Convergence Prospects At Risk27
Serious challenges face the Turkish economy over the next several years which have dampened somewhat its long-term convergence prospects That said, real GDP growth is expected to continue outperforming the eurozone through to the end of our 10-year forecast period
TABLE: LONG-TERM MACROECONOMIC FORECASTS27
Chapter 4: Operational Risk29
SWOT Analysis29
Operational Risk Index29
Operational Risk30
TABLE: OPERATIONAL RISK30
TABLE: EMERGING EUROPE - EDUCATION RISK32
TABLE: GRADUATES OF TERTIARY EDUCATION33
Government Intervention 36
TABLE: EMERGING EUROPE - GOVERNMENT INTERVENTION RISK 37
TABLE: PERSONAL INCOME TAX BRACKETS38
Chapter 5: BMI Global Macro Outlook41
Global Outlook41
Emerging Markets Bending, Not Breaking41
TABLE: GLOBAL ASSUMPTIONS41
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %42
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %42
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %43

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