By, Theresa Reichstadt
Political instability has shaken Turkey’s economy; however, the Turkish economy has bounced back. Turkey’s economic outlook is surprisingly positive due to the faster than anticipated recovery after the July 15th, 2016 failed coup attempt.
The graph above portrays data from the World Bank on Turkey’s GDP growth from 2014 to 2016, and Turkey’s projected GDP growth in 2017, 2018, and 2019. Turkey’s economic growth is up by 4.7% in the first quarter of 2017 and is forecasted to keep rising. President Recep Tayyip Erdoğan has claimed that “the worst is over” for the Turkish economy, referring to the improving figures in various parts of the economy from exports to domestic consumption.
Reasons for growth: increased public spending, increased consumption, and improvements in Europe.
As uncertainty declines, the level of nominal GDP increases which is driven by greater investment levels, especially in construction. For example, some large-scale infrastructure projects are the Marmaray, the Eurasia Tunnel, the Yavuz Sultan Selim Bridge, the Istanbul New Airport, the Ankara-Istanbul High-speed Railway, the Baku-Tiflis-Kars Railway, and the Çanakkale 1915 Bridge. Stronger investment growth drives stronger GDP growth, which increases the overall wellbeing of the Turkish economy. The Turkish government has also been pouring money into development projects. Although the Turkish economy is growing, structural and developmental reforms need to be prioritized in order to ensure sustainable, long term economic growth. Since these temporary infrastructure projects stimulate the economy and create jobs, the rise in employment opportunities will decrease the overall poverty level.
Turkey’s recovery can continue with help from the United States. In order to improve economic ties, U.S. producers should integrate with Turkish producers and exporters. There is great potential for U.S. exporters to magnify their market shares in technology intensive intermediary goods and consumer products; for example, machinery, chemicals, and the automotive industry. Incorporating Turkish suppliers into supply chains dominated by the U.S. will help strengthen the growth of the Turkish economy as well as the bilateral ties between the two nations. The Turkish market also has multiple incentives to promote foreign direct investment such as reduced corporate tax, social security premium, and interest support. Turkey has an ongoing privatization program that is prevalent in many sectors such as banking, energy, and infrastructure. The rise of the Turkish middle class has resulted in a boom of consumer demand. In addition, there is a high demand for U.S. imports to Turkey and to the region. Turkey serves as a key regional hub to markets in Europe, the Middle East, and Central Asia.
Current underlying weaknesses of the Turkish economy is the account deficit and the inflation rate. The current account deficit is estimated at a 4.1% of GDP. Also, the inflation rate will remain well above the target rate.
On one hand, some will claim that the depreciation of the Turkish Lira will further feed into consumer prices, which will erode the purchasing power of households. In contrast, the fall of the Turkish Lira has acted as a stimulus to exports. The Turkish Lira has also stabilized recently. Additionally, tax cuts are encouraging consumers to spend by putting more money in their pockets for them to contribute it to the economy.
On the other hand, some will claim that flooding the economy with credit is encouraging short term growth. The government’s priority is to leverage the public and banking sector’s balance sheets to keep domestic activity robust, especially ahead of the 2019 election.
Turkey’s recent economic growth is inarguable. The GDP per capita in Turkey has more than tripled over the past decade. Turkey’s economic resurgent is projected to keep rising for the rest of 2017, and the next years to come; but uncertainty lies ahead once the Turkish economy is overflowed with credit. Although Turkey’s economy is resilient, urgent structural reforms are needed to ensure the growth is sustainable.