Turkey Continues Its Measured Rate Policy

But unlike the US, this policy is taking rates sytematically downwards. Turkey's economy seems to be surviving the trauma of the French and Dutch referendum votes nicely. In fact Turkey remains the major success story in the ambit of the EU economies. Trend growth seems to be around 7% and inflation is falling significantly - to an annual rate of about 5.8% last month. The big area of difficulty is unemployment, with the young growing population meaning large numbers of people enter the labour market each year.

Turkey has enjoyed an impressive macroeconomic turnaround in the past four years, with accelerating economic growth and declining inflation rates, which has raised per capita income from US$2,160 in 2001 to US$4,172 last year. Unfortunately, such a vibrant performance has not been sufficient to catch up with the country’s growing labour force. Indeed, the number of employed increased by 936,000 (or 4.7% year on year) in the last 12 months — a decent improvement, especially considering employment contraction in the agriculture sector. However, given 856,000 new entrants to the labour market, the unemployment rate improved only a little, from 12.4% in the first quarter of 2004 to 11.7% this year.