With Turkish GDP Up 8.9% in 2010, Can Erdogan Keep his Grip on Inflation?

Posted on 01 April 2011

Turkstat has just revealed its data on GDP growth for 2010 and the final figure was 8.9%, considerably higher than the 6.4% reported by Prime Minister Erdogan at the start of the year.

According to the data, the Turkish economy grew 9.2% in the fourth quarter, following growth of 11.3%, 10.4%, and 5.5% respectively in the previous 3 quarters of the year, and 6.4% in the final quarter of 2009. This of course following a year long and very severe recession.

The one-to-watch now according to economists is inflation. Throughout its 2 terms the ruling AK Party has consistently reduced inflation through reforms to the banking system and a focused effort to pay down public debts. This culminated in the 41 year low figure of 6.4% to end 2010.

The upcoming June 12th election will certainly be an incentive for the AK Party to maintain its iron-glove on inflation, but economists are fearful none the less.

The “sheer pace of growth in the fourth quarter, and its increasingly unbalanced nature, adds to mounting evidence that the economy is overheating,” Capital Economics said in a report this week. “Turkey‘s position as Emerging Europe’s star performer is looking increasingly precarious.”

Of course, the AK Party is yet to raise interest rates, despite the fact that almost all countries have done so upon returning to growth. The idea of this was to make speculative investments less appealing in the hope of stemming the flow of hot money into the economy, but now with soaring domestic consumption a seemingly greater risk to the country‘s economic stability, we could very easily see this policy change.

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