Relative to the past decade, we expect slower, more balanced growth in the next decade on the back of less abundant foreign capital inflows and slower domestic credit growth.
Turkey faces a challenging foreign policy environment amidst heightened regional tensions and rising external security risks as the government attempts to cement its role as an economic and political power in the region.
With the Justice and Development Party (AKP) regaining its parliamentary majority in the November 2015 general election, Turkey will operate under a de-facto executive presidential system, with negative implications for institutional quality and government checks and balances.
A collapse of the government's ceasefire with the Kurdish separatist PKK is a major step back for the country, weighing on growth potential.
While the government's debt load is low by regional standards, the private sector's rampant external borrowing in previous years has greatly increased macroeconomic risks.
Despite cheaper oil, Turkey's current account deficit will remain large and a major macroeconomic vulnerability. Turkey will remain reliant on short-term foreign capital inflows to cover the sizeable current account shortfall, leaving it prone to tightening global liquidity and shifts in international risk sentiment.
A dovish central bank will keep inflation above target and ensure a volatile growth trajectory.
Major Forecast Changes
No major forecast changes
The major risk to Turkey's macroeconomic trajectory in the coming years stems from its large external financing requirement. Turkey's large current account deficit and dearth of foreign direct investment inflows leaves the country vulnerable to external shocks and a major outflow of foreign capital, which becomes more likely as the US Federal Reserve commences a tightening cycle. As such, we believe risks to growth are weighted primarily to the downside.
Geopolitical conflict and rising incidence of terrorist attacks within Turkish borders have weighed on external trade and tourism inflows, and may escalate in the coming year, dampening further the growth outlook.
|Real GDP growth, % y-o-y||4.2||2.9||2.8||2.9|
|Nominal GDP, USDbn||822.4||799.8||685.7||677.9|
|Consumer price inflation, % y-o-y, eop||7.4||8.2||7.8||7.1|
|Exchange rate TRY/USD, eop||2.15||2.34||3.10||3.20|
|Budget balance, % of GDP||-1.2||-1.3||-1.8||-1.8|
|Current account balance, % of GDP||-7.9||-5.7||-5.0||-5.0|
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