14 Haziran 2011 Salı

Time to focus back on the economy, experts tell new Turkish lawmakers

Tuesday, June 14, 2011


ISTANBUL- Hürriyet Daily News
Along with a number of hot political issues, Turkey’s new lawmakers will face the basic economic challenges of the current account gap and inflation while trying to create jobs in the wake of parliamentary elections, according to economists speaking to the Hürriyet Daily News
The climbing current account deficit, inflation and high unemployment remain lingering problems that Turkey’s ruling party will have to tackle in its third term in power after an election victory Sunday, according to several economists.

“The general election results were expected by investors,” Banu Kıvcı Tokalı, the chief economist at Destek Securities, told the Hürriyet Daily News after the results of the election, won by the Justice and Development Party, or AKP, were made public. “Though the results will boost the power and respectability of the AKP, Turkey’s economic challenges will need to be tackled as soon as possible.”

Foreign investors will follow the trend of investing in emerging markets while Turkey keeps attracting a larger portion of these investments, due to “confidence in the market,” Tokalı added.

One of the major challenges facing the new government will be inflation, which has reared up in recent months. Consumer prices in the country rose by 2.4 percent in May from 4.3 percent on the year, according to figures from the Turkish Statistics Institute, or TurkStat.

As result of the inflation hike, the Turkish Central Bank might increase its benchmark interest rate by 50 basis points in June and 25 basis points in July according to Standard Chartered, a multinational financial services company headquartered in London.

Oil prices

“Markets will enjoy the political stability assured by the AKP for the third time,” said Nurhan Toğuç, the chief economist of Ata Invest, who added that the nation’s major economic challenges will remain a “heavy burden on the shoulders of the new government.”

She said the skyrocketing oil prices, caused mainly by the regional turmoil in the Middle East and North Africa, would also continue affecting Turkey, especially the country’s current account deficit and inflation rates. “Political stability will need to also bring economic stability,” Toğuç said. “The fight with the widening trade gap will be a real challenge for Turkey’s new government.”

The current account deficit ballooned to more than $60 billion, or about 8 percent of gross domestic product, in the 12 months through March, compared with a government forecast of $42 billion for the year, according to Bloomberg.

Toğuç said a possible increase in taxes and implementation of new taxes might be on the agenda of the new government, whose Deputy Prime Minister Ali Babacan stated previously that Turkey’s next medium-term economic program would look for “ways to use public finance to help manage the country’s widening current account deficit.”

Turkey’s current account deficit for this year will be $63.5 billion according to Turkish Central Bank forecasts.

Recent threats

“Despite the trust injected into the markets, current account deficit figures announced Monday might draw the attention of investors and financial actors to Turkey’s economic challenges,” said Kerem Alkin, director of Bloomberg HT. “The AKP’s winning close to 330 was the scenario expected by 47 percent of investors before the general elections.”

The Turkish lender Akbank also emphasized the country’s current account deficit problem in a note Monday to investors. Forecasting the gap would stand at 8 percent of gross domestic product by the end of the year, the bank said: “The AKP is now in a strong position to tackle Turkey’s more pressing issues; the large current account deficit and the strength of domestic demand.”

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