A fortnight ago, Turkish Finance Minister Mehmet Şimşek was awarded Finance Minister of the Year for Emerging Europe 2013 by the Emerging Markets magazine. Şimşek is the first Turkish minister to win the award, which recognised his success in “managing to contain Turkey’s budget, halving Turkey’s public debt, and presiding over the country’s becoming of investment grade”, the magazine stated.
The latest edition of Employment Outlook 2013 by the Organisation for Economic Co-operation and Development (OECD), predicts that Turkey will post the second-highest GDP growth rate in 2014 among all its 34 member nations.
British Economist Jim O’Neill who coined the acronym Bric to denote the big emerging economies of Brazil, Russia, India and China has now placed Turkey inside Mist — a second tier of rising economies alongside Mexico, Indonesia and South Korea.
In a spectacular growth that left the world stunned, Turkey’s GDP rose by 8.5 per cent in 2011 after a 9 per cent increase in 2010, although it dropped to 3 per cent in 2012.
In the second quarter of this year, the Turkish economy grew faster than expected. The Turkish Statistical Institute (TÜİK) says GDP expanded by 4.4 per cent in the second quarter, compared to the same period last year, and up from 2.9 per cent the previous quarter. It is worth noting that the average of predictive estimations had come in at 3.5 per cent, with the most optimistic at 4.2 per cent, and few expected the country to post such a high growth rate.
As TÜİK revised first-quarter growth data downward to 2.9 per cent from 3 per cent, overall growth appeared to be 3.7 per cent in the first half of the year. Deputy Prime Minister Ali Babacan said that the economy had grown faster than expected due to the high base effect of gold exports in 2012 and gold imports in the first half of 2013.
He added that an expected rise in other exports was likely to positively affect growth rate in the second half, along with the relative economic recovery of the European Union (EU).
Economy Minister Zafer Caglayan meanwhile confirmed that Turkey, one of the biggest service exporters in the world, had increased its exports by 15.1 per cent in the first eight months of this year.
Diverse reactions
But, Turkey’s rather rapid recent growth comes with side effects that leave its economy vulnerable, and ministers and industry watchers continue to issue cautious statements.
In its October mid-term economic programme, the Turkish government cut down its growth forecast for the 2014-2016 period while increasing its target for inflation and unemployment. The government has reduced the growth rate target from 4 per cent to 3.6 per cent for this year, and from 5 per cent to 4 per cent for 2014. Babacan says his priorities are to reduce current account deficit and inflation, and increase growth and employment. “The Turkish economy’s structural problems are quite known: our domestic savings are very low, we are highly dependent on foreign energy sources, and our value-added production is at low levels,” he summarised. “All our policies will complement each other, from financial to fiscal, to resolve all of these structural problems.”
Paradoxically, the International Monetary Fund (IMF) has increased its forecast for Turkey’s 2013 economic growth by 0.4 percentage points, from 3.4 per cent to 3.8 per cent, in its World Economic Outlook. Noting that moderate recovery is being made this year, and predicting that it will continue in 2014, the IMF report observes that risks and domestic policy challenges remain significant in Turkey.
A good mix
Turkey’s largely free market economy is increasingly driven by its industry and service sectors, although traditional agriculture sector still accounts for about 25 per cent of employment. An aggressive privatisation programme has reduced state involvement in basic industry — banking, transport, and communication. Construction, automobiles and electronics continue to rise in importance and have already surpassed textiles within Turkey’s export mix.
Despite its unremarkable national oil production industry, Turkey has made itself critical to the world’s energy market mostly due to its geography. It is the only landmass between the Middle East and Europe and also between the Black and Mediterranean seas.
According to business intelligence firm Business Monitor International’s Turkey Oil and Gas Report Q4 2013, Turkey will remain heavily dependent on oil and gas imports for the foreseeable future, but nothing can usurp its position as an indispensable player in the global energy market. “The decision to proceed with the TAP and TANAP natural gas pipelines cements Turkey’s position. There is also upside potential in the form of Black Sea reserves and unconventionals including shale,” says the report.
Money matters
After a severe financial crisis in 2001, Ankara adopted financial and fiscal reforms as part of an IMF programme to usher in an era of strong growth averaging more than 6 per cent annually until 2008. However, Turkey’s relatively high current account deficit, uncertainty related to monetary policy making, and political turmoil within Turkey’s neighbourhood leave the economy very vulnerable to destabilising shifts in investor confidence.
“Were global liquidity to dry up or risk appetite to turn sour, the economy would be forced into a sharp adjustment,” the IMF warned in its last report. A June report from Morgan Stanley ranked Turkey as one of five emerging markets most vulnerable to a withdrawal of foreign financing.
Another cause of worry is that much of the foreign capital that finances Turkey’s current account deficit is of the flighty sort, which can leave quite quickly. For instance, in August, Abu Dhabi National Energy Co (Taqa) deferred its investment decision in Turkey’s $12-billion (Dh44 billion) Afsin-Elbistan coal-power project, citing “other spending priorities.”
These concerns come on the back of widespread predictions that Turkey will be one of the hardest-hit developing economies should the US Federal Reserve tighten its own monetary policy in the near future and end foreign access to cheap dollars.
— Special to GN Focus
