Turkish Economy’s steady growth
Despite some geopolitical headwinds, Turkey’s economy is going from strength to strength and GDP growth forecasts remain impressive. All this contributes to Turkey’s growing stature on the world stage.
Turkey has made huge strides over the past decade in developing its economy, establishing good trade relationship with other countries and attracting impressive foreign investment.
This has made the country a wellacknowledged partner in international trade and a respected actor in global markets. With its latest reform agenda, which focuses on further reducing sovereign debt, cutting its current account deficit, curbing inflation and boosting job creation, Turkey’s economy offers the “best hope for investors looking for opportunities in a problematic global economy,” according to Prime Minister Ahmet Davutoğlu.
He was speaking to business leaders on a visit to London in mid-January to pitch his latest government reform programmes, namely this year’s reform agenda, the 2016 Action Plan, and the updated 2016- 2018 Medium Term Programme. Davutoğlu didn’t play down the fact that Turkey is in a somewhat straitened position with “several collapsed states in its neighbourhood where there is no functioning economy anymore,” as well as in tensions with Russia that led to sanctions, all paired with an otherwise sluggish global economic recovery. “Despite these negative trends, we have some very positive developments as well, which makes Turkey a safe port for investment as well as a safe haven for economic agencies and institutions to work in,” the Prime Minister said. His statement is supported by the World Bank which noted that despite last year’s election uncertainty, Turkey’s economy posted strong growth which is estimated to have accelerated to 4.2 per cent in 2015 from some 3 per cent in the previous year, mainly driven by higher private consumption as a result of a 30-per cent rise in minimum wage, public spending, as well as recovering private investment.
Turkish Deputy Prime Minister Mehmet Şimşek, who is in charge of economic policies, said at the January 11 briefing in Ankara that he expects the country’s economic momentum to continue and raised GDP targets for 2016 to 4.5 per cent from 4 per cent and to 5 per cent for both 2017 and 2018. Turkey’s stubbornly high inflation, one of the major remaining economic headaches, is forecast to decline to at least 7.5 per cent by the end of 2016, from 8.8 per cent in 2015, Şimşek said, as a result of the structural reform programme. In terms of international economic co-operation, Turkey is strengthening its ties to both the West and the Middle East owing to its favourable geographical position on the crossroads between Europe and Asia, as well as to other important world regions in a quest to diversify from its traditional trade channels. Over the past few years, investment, especially from Gulf Cooperation Council nations, has been strong and a number of joint projects have been kicked off. While low oil prices have slowed down investment from the Gulf somewhat, cheaper oil, in turn, has been helping to stabilise Turkey’s current account deficit at around 4.6 per cent of GDP, World Bank data shows.
With regards to the West, Turkey has revived its accession process to the European Union, hoping that its efforts to become an EU member will further contribute to Ankara’s development plans on bringing better standards of democracy, fundamental rights, freedoms and rule of law. Last December, economic policy talks were included in the negotiations about Turkey’s possible full membership in the 28-nation bloc. Meanwhile, the existing customs union agreement with the EU, which has been unchanged since 1995, is set to be revised and expanded into sectors including energy, tourism, communication, agricultural products and transportation from next year. This is clearly a favourable move in the light of Europe’s slow but steady economic recovery and also crucial for Turkey as the European Union remains its biggest trade partner.
The European influence
With these initiatives, Turkey seems to be moving back into the European influence sphere while trying to lower its economic exposure to Russia and also China, notes Kemal Kirişçi, Senior Fellow at the Turkish Industrialists & Businessmen Association, the top business association of Turkey. “Tensions with Russia may be propelling Turkey back into Europe’s arms,” Kirişçi said in a recent analysis for the Brookings Institution, a US-based public policy think tank.
US-based public policy think tank. “This could translate into shared common values – such as the rule of law, transparency, accountability and liberal democracy – that are essential for securing Turkey’s economic growth. It could bring Turkey back to the crossroads at which it sat a decade ago, which would be a winwin for Turkey and the Middle East, as well as for the West,” he said.
But it is not all about stronger ties to Europe. Turkey also aims at fostering economic ties with Central Asian nations, with the latest initiative being co-operation in agriculture and small businesses with Azerbaijan, as well as deepening trade, investment and economic ties with Pakistan and Iran, particularly after the latter’s trade sanctions were lifted. Apart from that, there are also plans to develop an industrial zone in Kyrgyzstan for Turkish companies, a move seen to help Turkey benefit from trade within the Eurasian Economic Union.
A new trade axis to Asia-Pacific is also on the cards in the mid-term. President Tayyip Erdoğan’s February visit to Latin America, where he lead a large business delegation to Chile, Peru and Ecuador, was another effort to boost alternative trade channels for major Turkish exports to the region, including iron and steel, machinery, autos and vegetable oils.
Domestically, the government in Ankara expects unemployment falling to 9.6 per cent by the end of 2018, from 10.2 per cent at the end of 2015. Sovereign debt should be reduced by less than 30 per cent of GDP by 2018, and the budget deficit should decline to 0.8 per cent by that time, from 1.3 per cent now. Inflation eventually should come down to 5 per cent by 2018, according to the plan, flexing Turkey’s economic muscles further.