Abstract
the back of record low capacity utilisation in December, we now believe that
Turkey will experience a
full-year economic contraction in 2009. We have
revised down this year’s real GDP growth forecast to
-3.3%, with a
marked contraction in fixed capital investments and private consumption
weighing on
headline growth. As was the case with Turkey’s other
recessions over the past two decades, we expect a
recovery to positive
growth in subsequent years. That said, we caution that with the external
climate
likely to remain weak, the recovery will be mitigated, with growth
of 1.7% in 2010 and an average of
5.0% between 2011 and 2013.
Political risks continue in Turkey through 2009, and will likely be
exacerbated by this ongoing economic
downturn. Rising unemployment
continues to be a challenge to political stability, and will likely drive
public protests, demonstrations and strikes in the near future, further
eroding public support for the
government. As popular pressures on the
government elevate, the risks to policy continuity will
commensurately
increase. In addition, Turkey’s support of the US and its amicable
relations with Israel
continues to create tensions and sour relations
between Turkey and neighbouring Muslim countries such
as Iran. Turkey also
has ongoing conflict with the Kurdish militant network, the Kurdistan
Workers’ Party
(PKK)/Kongra-Gel. In recent months, some 2,500
Kurdish fighters are reported to have returned to
Turkey from where they
were based in northern Iraq. While not extensively equipped, the PKK has
demonstrated its ability to launch periodic attacks against the Turkish
authorities.
Turkey is one of the world’s largest arms importers and
has the second-largest armed forces in the North
Atlantic Treaty
Organization (NATO). The size of its army and arms expenditures is unlikely to
change in
the near future. However, Turkey’s defence budget and
number of troops are likely to fall in the coming
years, due to the
combined effects of a weakened economy, EU pressures and shifts in the nature
of
threats to the country. The country’s defence industry is small,
but is likely to grow and improve. Its
export industry is also likely to
increase over time as local design and production sees competitive
products developed.
This quarter, we have introduced a significant new
aspect to BMI’s Defence reports, which is the City
Terrorism Rating
(CTR). This assesses the risk of a terrorist attack. The CTR takes into
account the
overall BMI Terrorism Rating for the country in question. It
also incorporates the ‘prevalence’ of
terrorism, which
recognises the frequency of attacks, and whether the city is a target for
terrorists. The
CTR also recognises the ‘threat’ of terrorism
in terms of the likely numbers of victims and the ability of
groups to
launch sustained campaigns. In Turkey we assess the CTR for Istanbul. At an
overall CTR of
45.0, Istanbul has the lowest rating in the Central and
Eastern European (CEE) region, indicating the
ongoing risks of terrorist
attacks in the country.
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