Turkey’s economy has been subject to the buffeting winds of political turmoil, a falling lira and fluctuating international relations. However, it’s stood up remarkably well, with record 11 percent growth reported in the third quarter of 2017, which saw Turkey earn a place as the fastest-growing G20 economy.
With memories of the 2016’s attempted coup and security concerns fading fast, Turkey is a country looking forward to a bright economic future. According to global ratings agency Fitch Ratings, the economy is expected to grow by 4.8 percent annually over the next five years.
We give a snapshot-view of the factors influencing the economy this year: the good and the bad.
Good: exports will beat last year’s record
Driven by the Turkish lira’s fall against the dollar and other major currencies, 2017 exports reached new heights, earning the country US$144 billion. Among the most successful export industries was the automotive sector. Turkish auto makers produced more than 1.54 million vehicles last year, including Renaults, Peugeots and Toyotas. Seventy-five percent of these were for European countries.
This year, Turkey expects to best previous export records by beating the country’s $169billion target.
Bad: Unemployment will remain high
Turkey’s unemployment rate is around 10 percent, and expected to grow by one percentage point by the end of the year. The government is pushing ahead with efforts to tackle the unemployment rate, which affects its youth the most of all, with one in five young people currently jobless. Erdogan has said the government aims to train more workers in the sectors of renewables and IT. It will also aim to employ more women. The government hopes these measures will bring the figure to around 10.5 percent.
Good: Government measures will increase spending and boost employment
Taxation and credit guarantees have stimulated consumer spending. Fuelled by a growing middle class and a young, increasingly educated population, consumer spending has risen in the last few years as Turkey’s population becomes wealthier, and this economic activity has become crucial to the country’s economy. A significant portion of this spending is in the housing sector, as more and more young Turks opt for home ownership.
Good: Turkey will benefit from more hot money
Short-term investments, known as “hot money” boosted 2017’s growth and it’s thought this will continue this year. These investments are driven by temporary factors, such as Donald Trump’s precarious policies, and security concerns in the Middle East which are diverting investment from those countries into alternative safe havens.
Bad: The current account deficit needs addressing
Swelling from $33.7bn at the end of 2016 to $41.9bn at the present date, Turkey’s current account deficit has widened thanks to government spending aimed at boosting the economy, as well as the country’s reliance on imports. The effects of the deficit are limited as long as money is flowing into the country, but the concern is that the reliance on hot money is unsustainable, and the deficit will need to be addressed this year.
Good: Mega projects will boost employment and confidence
The large number of construction projects in Istanbul and further afield including Erdogan’s mega projects like the Istanbul New Airport and the Eurasia Tunnel, have created thousands of jobs for Turkish workers. These projects have also fired the national imagination with their scale and scope, and helped consumer confidence.
Good: Tourist numbers will improve
Early bookings in the European market show Turkey is set to experience significant tourism growth this year as European holidaymakers return to Turkey. As security concerns fade into the background, Brits - especially those with families - and other Europeans are once again booking holidays on Turkey’s south coast. It’s expected a 50 percent increase in the number of British tourists and others will send figures back up to 2015 levels.
Bad: Inflation could lead to rate hikes
Late last year, inflation hit a 14-year high of 13 percent, including a 24 percent increase in intermediate goods. The rapid rate of price growth was exacerbated by the poor value lira, which fell 6.5 percent against the dollar in 2017, pushing up the price of imports. The high figures might see Turkey’s central bank pursuing a rate increase to bring the figure down to a more sustainable 5 percent. However, rate hikes are measures that will be vehemently opposed by President Erdogan, who has termed them “treasonous”. This won’t deter the central bank, who raised rates in December.
Good: We can expect more foreign investments
Last year saw an uptick in the number of mergers, takeovers and joint ventures in Turkey, according to Turkey’s Competition Board. A board representative said the phenomenon is set to continue this year, indicating Turkey’s economy is in a position of strength. “Ongoing interest of foreign capital in Turkey shows foreigners trust the country’s economy.” The country’s strong third-quarter growth will attract more investment, the representative claims.
Good: Property demand will increase
Demand for property in Turkey has never been higher, and property sales will continue to drive the economy. The number of apartments in Istanbul and wider Turkey sold to foreign buyers rose by 21.4 percent year-on-year to November, as incentives like citizenship and residence visas encouraged foreign property investment among those who wish to take advantage of living in Istanbul and Turkey. Istanbul continued to lead the way, followed by Antalya and Bursa. Iraqi citizens topped foreign buyers, followed by Saudis, Kuwaitis and Russians.
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