government continues to allow spending to rise quickly. The booming economy pushed Turkey’s consolidated budget deficit downward to 1.3% of GDP in 2011, a five-year low and easily besting the 2.8%-of-GDP target. (3)Exchange Rates: We anticipate that the Turkish lira will continue to remain relatively strong vis-à-vis the US dollar in 2012. Any nominal depreciation will be modest and represent a relative stability or even strengthening in the real effective exchange rate. With the success of the central bank’s monetary policy, there will be no shift to a more orthodox policy. The continued improvement of the current-account deficit will help to buoy the lira nonetheless. In the longer term, the lira will be stable and strong. Assuming that the CBRT and the government succeed in taming domestic demand and eventually begin to reduce the country’s external obligations, we anticipate that the Turkish lira will once again resume gaining value in the longer term. Previous worries that the lira might be overvalued have been dissipated due to the sharp losses noted since 2008. (4)External Debt: At the end of December 2017, the gross, foreign-currency denominated debt of the Turkish state stood at $453.2 bn (about 53% of GDP), while Turkey's net foreign debt was $291.2 bn (about 34% of GDP). (6)FDI in Turkey:
Up until 2002, total FDI into Turkey stood only at USD 15 billion, while the country has since attracted around USD 193 billion of FDI during the 2003-2017 period. (7)Inflation: Monetary policy is working more effectively than we had anticipated, although we believe a further deceleration will be difficult. The lowering of global energy price forecasts has helped to reduce the upward pressure on Turkish inflation in the near term, but we believe that low interest rates will fuel greater domestic demand, undermining the country’s ability to further reduce annual inflation rates. The restrictive monetary policy of the Central Bank of the Republic of Turkey (CBRT) has found success in finally driving down elevated annual inflation rates. In June 2012, annual consumer price growth was down to 8.9%. (8)Labor Markets: With the Turkish economy growing more slowly in 2012 and 2013, the recent strong recovery in the labor market is expected to backslide somewhat in the near future. While the country's industrial recovery is helping to return many previously laid-off workers to their jobs, hiring is somewhat guarded as uncertainty regarding future conditions remain strong. Having laid off thousands of workers from late 2008 through early 2010, Turkish manufacturers are attempting to boost their productivity levels and guard against future economic downturns by re-hiring workers slower than they dismissed them. With another economic slowdown in the offing, this reticence in re-hiring will intensify further in the near future. Nevertheless, we do not expect a major worsening, but rather more
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