Executive Summary.. 5
Core Views...5
Major Forecast Changes.....5
Key Risk To Outlook...5
Chapter 1:Political Outlook.. 7
SWOT Analysis... 7
BMI Political Risk Ratings..... 7
Foreign Policy I .. 8
EU Accession Increasingly Doubtful.....8
Turkeys increasingly assertive foreign policy is likely to weaken an already strained relationship with the EU . In particular, Ankaras
attempts to nurture greater political and economic influence in the Middle East, and its seemingly irreconcilable relationship with Cyprus,
will result in periodic flashpoints. As a result, Turkeys accession to the EU looks increasingly unlikely, and even were it to eventually
happen, we maintain that it would not occur before 2021 at the earliest.
Foreign Policy II ..... 9
Syria Escalation Presents Huge Risks..9
As relations between Turkey and Syria continue to deteriorate, the prospect of Turkish military intervention continues to rise. However,
this presents huge domestic political risks for Turkey, particularly should Syria and Iran step up their support for the Kurdistan Workers
Party operating in Turkey.
Long-Term Political Outlook... 10
Structural Changes To Continue Through 2010s...10
Turkeys ruling Justice and Development Party will take advantage of its election to a third term to press ahead with sweeping reforms
to the political and social system. Although these reforms have broad support from the public, there is still significant opposition from the
traditional secular establishment. If the moderate Islamist party overreaches itself, it could trigger a wider backlash. In terms of foreign
policy, we expect Turkey to continue rebalancing its interests away from the West in favour of closer ties with the former Soviet Union
and the Middle East and North Africa region.
TABLE: Political Overview.... 11
Chapter 2: Economic Outlook.... 13
SWOT Analysis..... 13
BMI Economic Risk Ratings.... 13
Economic Activity ... 14
Pronounced Slowdown Due In 2012....14
Downside risks to the Turkish economy are becoming increasingly pronounced in light of growing domestic inflationary pressures, a
precarious external position and a deteriorating global macroeconomic backdrop. Accordingly, we have revised down our 2012 real
GDP growth forecast to 1.8%, from 4.5% previously. Moreover, with the Turkish central bank likely required to maintain its tightening
bias to combat elevated inflation, there remains the potential for a hard landing for the domestic economy at some point in 2012.
TABLE: ECONOMIC ACTIVITY.. 14
Balance Of Payments ..... 17
At High Risk From External Shocks....17
Only a modest adjustment is expected in Turkeys current account deficit over the medium term as the positive effects of a weaker
currency and slowing domestic demand are limited by still-elevated oil prices and a deteriorating global growth outlook. Owing to
a heavy reliance on foreign borrowing and portfolio inflows, Turkey remains highly exposed to external economic shocks, whereby
massive capital flight would result in a hard landing for the economy.
TABLE: CURRENT ACCOUNT ... 17
Monetary Policy ... 19
Inflationary Pressures Continue To Mount.....19
Providing further evidence that the Turkish central bank has failed to adequately address inflationary pressures, consumer price inflation
hit 9.5% y-o-y in November 2011. Moreover, owing to a combination of tax hikes, elevated commodity prices and lira weakness, we
expect inflation to remain a major problem over the medium term. We forecast inflation to come in at 7.0% by end-2012, well above the
central banks target of 5.0%. With the central bank likely required to maintain a tightening bias, this raises the risk of a hard landing for
the domestic economy, particularly as headline growth has already begun to display signs of moderation.
TABLE: Monetary Policy.... 19
Fiscal Policy .... 20
Fiscal Outlook At Risk From Hard-Landing Scenario....20
Owing to stellar revenue growth in Turkey in the first 10 months of 2011, we have been prompted to revise down our budget deficit
estimate to 0.9% of GDP, from 2.7% previously. However, we note that the prospect of a hard landing for the domestic economy in 2012
raises the potential of a deterioration in the countrys fiscal dynamics over the medium term.
TABLE: FISCAL POLICY.... 20
Chapter 3: 10-Year Forecast.. 23
The Turkish Economy To 2021... 23
Convergence To Remain In Play.....23
We retain a positive view on the long-term economic prospects for Turkey, with real GDP growth expected to continue outperforming
the eurozone through to the end of our 10-year forecast period. We believe economic policy reforms in the medium term will set the
groundwork for productivity gains beyond 2015, financed mainly through a steady stream of foreign direct investment from the EU
between 2011 and 2014. Significant risks will remain, however, especially as underlying social tensions between secularists and
moderate Islamists are unlikely to disappear in the next decade. This has contributed to our view that Turkey will not join the EU by
2021.
TABLE: LONG-TERM MACROECONOMIC FORECASTS .... 23
Chapter 4: Business Environment. 25
SWOT Analysis..... 25
BMI Business Environment Risk Ratings.. 25
Business Environment Outlook.. 26
Institutions ... 26
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS... 26
TABLE: BMI LEGAL FRAMEWORK RATING... 27
TABLE: LABOUR FORCE QUA LIT Y..... 28
Infrastructure ... 29
TABLE: EMERGING EUROPE – ANNUA L FDI INFLOWS.... 29
TABLE: TRADE AND INVESTMENT RATINGS..... 30
Market Orientation ... 31
TABLE: TOP EXPORT DESTINATIONS .... 31
Operational Risk .. 32
Chapter 5: Key Sectors... 33
Oil & Gas .. 33
TABLE: Oil & Gas – Historical Data And Forecasts.. 37
Infrastructure ... 38
TABLE: Construction & Infrastructure Industry Data.. 40
Other Key Sectors.... 42
TABLE: Autos Sector Key Indicators... 42
TABLE: Food & Drink Sector Key Indicators..... 42
TABLE: Freight Key Indicators.... 42
TABLE: Pharma Sector Key Indicators.... 43
TABLE: Defence & Security Sector Key Indicators... 43
TABLE: Telecoms Sector Key Indicators... 43
Chapter 6: BMI Global Assumptions. 45
Global Outlook.. 45
Eurozone Break-Up Risks Rising ...45
TABLE: GLOBAL ASSUMPTIONS ..... 45
TABLE: DEVELOPE D STATES REAL GDP GROWTH FORECAST .... 46
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS .... 46
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST ... 47