Macroeconomic Forecast Turkey

In week-ending (w/e) May 25, forex reserves were down by only 0.6% from their all-time peak of US$66.18bn recorded on April 27. This, combined with further lira strengthening, indicates that financial markets have shrugged off the political crisis in late-April. This being the case, inflation should start to fall in H207, permitting some relaxation of monetary policy, especially in the last quarter. Overall, the economic prognosis is firming, with the deterioration of domestic demand in late-2006/early-2007 shallower than initially thought. There are upside risks to our growth projections, as the outlook for consumer spending, investment and exports brightens.

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