The economy may contract 2.5 percent this year, less than the government’s forecast of 3.6 percent, as economic growth returns in the fourth quarter of the year, Merrill Lynch economist Türker Hamzaoğlu said in the e-mailed report.
"The more in detail you review the region’s external funding and banking problems, the better Turkey looks," he said.
Turkey’s inflation rate will dip to a low in October and rise to 5.5 percent by the end of the year, below the Central Bank’s target, Hamzaoğlu said. The Bank will start hiking the benchmark interest rate in the final quarter of this year or in early 2010, he said.
Economic policies in Turkey implemented since the 2001 financial crisis have now been replaced by the "new orthodoxy" of loose fiscal and monetarypolicy, Hamzaoğlu said.