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After the bankruptcy of major US investments banks and insurance companies in March 2008, the world economy have been in a trauma and that spread to Europe in a very short time. Even tough countries declared their prevention packages following each other, the turmoil did not finalize and became more contagious each day. There are fears that the Greek problem could spread to other eurozone countries, which are now anxious to bolster investor confidence. During this period Turkey had real GDP growth and continued outperforming. However due to the continuation of global macro economic backdrop, rising domestic inflationary pressures and inconsistent balance of payments dynamics the outlook for the Turkish economy in 2012 has also worsened significantly by the beginning of 2012.

Central Bank is introducing a strategy to preserve a tightening bias for at least the first half of 2012, which will act as a brake on credit growth and consumer demand. Turkey’s current account deficit will show further signs of deceleration in 2012 and 2013, but it will remain large nonetheless. The reliance on hot money inflows and foreign borrowing leaves the country vulnerable to external shocks. Very strong growth in early 2011, driven by private consumption and investment, has been curbed by credit containment policies and deteriorating global conditions. As a result, real GDP growth is projected to slow to 3% in 2012. It is set to recover in 2013 as the external environment improves. The sharp exchange rate depreciation in 2011 should gradually help re-balance domestic and external demand and narrow the large current account deficit, which by mid-2011 approached 10% of GDP. On the other hand, it may also put upward pressure on already high inflation.??Turkey’s economic growth will likely slow down to 3 percent this year from about 7.5 percent last year. The government might further adjust its forecast for growth of 4 percent depending on developments in Europe’s financial crisis. The rise in Turkey’s inflation rate, which hit a double-digit figure in December seems temporary. Consumer prices rose 10.45 percent in the year to December, while producer prices grew 13.33 percent, according TUIK. A 5 % annual inflation target for 2012 is still achievable. Turkey’s inflation in 2010 stood at 6.4 percent. Turkey’s central bank has been trying to limit the depreciation of the Turkish lira against foreign currencies by a selling scheme of reserves very diligently. The government has also been struggling to narrow its big current account deficit. Downside risk is still the fragile global economic environment especially in Euro-zone. If the mentioned measures taken by European Union leaders will not be applied, the precautions of stabilization by ensuring an adequately resourced European Financial Stability Fund (EFSF), Voluntary Greek sovereign debt haircut, Shoring up the banking sector through recapitalization, and finally being ready to provide liquidity to the banking sector will be unachievable and the turmoil will continue.??However, all in all, we don’t expect a new financial crisis in 2012 whilst expecting a weaker global growth outlook full of a sudden reflex of recovery. (?mür F?L?Z?Turkapital Holding B.S.C.(c))

4 Sept 2012

Major Economic Indicators

2010

2011

2012

Population (million)

73
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