Tur­key to boost GDP 2.2% in 2012

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Af­ter sev­eral years of very rapid growth, an abrupt slow­down is ex­pected in 2012. The de­cel­er­a­tion of­fers some ben­e­fits, al­low­ing a re­duc­tion in the cur­rent ac­count deficit and in­fla­tion.

The huge in­for­mal sec­tor un­der­mines pol­icy ef­fi­cacy. With half the pop­u­la­tion un­der 30 years of age, the ap­petite for con­sump­tion is for­mi­da­ble. An­a­lysts pre­dict that Tur­key will be­come Europe’s fifth largest econ­omy and a key trad­ing hub be­tween west­ern Europe, the Mid­dle East­ern and Asian economies by 2030.

Over­view of the econ­omy

Be­tween 2002 and 2008, real growth of GDP av­er­aged more than 6.0% per year, boost­ing out­put by a third. The boom was sup­ported by strong job cre­ation in both in­dus­try and ser­vices while labour­ers left the agri­cul­tural sec­tor. For­eign in­vest­ment in­creased many fold in this pe­riod while for­eign trade bur­geoned.

Dur­ing 2008 the econ­omy slipped into re­ces­sion which lasted for four quar­ters. A pre­cip­i­tous drop in ex­ports (mainly to the EU) was the ma­jor rea­son for the slump. In­dus­tries re­ly­ing on the coun­try’s plen­ti­ful supply of un­skilled labour suf­fered most. A strong re­cov­ery oc­curred in 2010 when real GDP rose by 9.2%, mak­ing Tur­key one of the world’s fastest-grow­ing economies for the year. The mo­men­tum was sus­tained in 2011 when real GDP grew by 8.5%. Ro­bust in­vest­ment helped to sup­port the econ­omy while ex­ports picked up in the sec­ond half of 2011. Out­put is now well above its pre-cri­sis peak.

The govern­ment’s in­abil­ity to make more progress in re­duc­ing the huge in­for­mal econ­omy weak­ens the ef­fi­cacy of pol­icy mak­ers. An es­ti­mated 53% of the work­force was un­reg­is­tered in 2004 and the share in 2010 was still about 44%. Pol­icy mak­ers have also been slow to boost com­pe­ti­tion in or­der to cut en­ergy and other costs.

Eco­nomic prospects

Af­ter gains of 8.5% in 2011, an abrupt slow­down is un­der­way in 2012 when real GDP should grow by 2.2%. The slow­down is at­trib­uted to a more re­stric­tive mon­e­tary and fis­cal pol­icy mix. Spillover ef­fects from the eu­ro­zone cri­sis are another drag. The de­cel­er­a­tion of­fers some ben­e­fits, al­low­ing a re­duc­tion in the cur­rent ac­count deficit and in­fla­tion, two ar­eas which have posed per­sis­tent prob­lems for pol­icy mak­ers.

Ankara is strug­gling to limit the credit ex­pan­sion that has un­der­pinned the econ­omy’s quick re­bound. Credit be­gan to slow in the fourth quar­ter of 2011. In­fla­tion was 6.5% in 2011 and prices are fore­cast to rise by 10.2% in 2012 – well above the cen­tral bank’s tar­get rate of 5.0%. Lend­ing has been curbed but even more pol­icy tight­en­ing may be nec­es­sary to meet the cen­tral bank’s tar­gets.

With half the pop­u­la­tion un­der 30 years of

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