Macro Path: Turkey

The Turkish economy has experienced a quite dramatic rebound in economic growth.
In Q1 10 the economy expanded 11.7% y/y – a growth rate only comparable to China.
Such a high growth rate is only temporary and can mainly be contributed to last year’s
significant economic setback. Going forward I expect Turkey to lead the region in
terms of economic growth albeit at a more modest pace. Forecasts show Turkish
economic growth of 7.9% y/y in 2010 and 5.9% y/y in 2011.

The sharp Turkish economic recovery is primarily driven be a recovery in domestic
demand. Growth rates in both private consumption and investments have now
returned to pre-crisis levels. The booming domestic demand has led to a large increase
in imports which will consequently weaken the current account balance. I expect
the Turkish current account deficit to increase in 2010 to 4.7% of GDP.

Rising economic activity and consequently rising wage growth will put upward
pressure on inflation going forward. So money markets expect an average inflation of 9.0% y/y and 7.8% y/y – above the central bank’s year-end target of 6.5% y/y and 5.5% y/y in 2010and 2011 respectively.