Turkey

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Area: 783,562 sq. km

Population: 81,619,392 (2014, est.)

Capital: Ankara

GDP: USD 798.3bn (2014, est.)

Exports: USD 176.6bn (2014, est.)

Imports: UST 240.4bn (2014, est.)

Currency: Turkish Lira (TRY)

Exchange rate: 1 USD = 3.04 TRY (01/2016)

 

Economic Development:

GDP growth in the last decade shows Turkey’s impressive evolution. Before the outbreak of the global financial crisis in 2008, Turkey’s annual GDP growth had reached a high level of 7% on average between 2002 and 2007. Although the crisis led to an immediate setback in 2008 (0.7%) and downturn in 2009 (-4.8%), resulting mainly from declining demand from Europe and elsewhere, Turkey quickly recovered with a strong upturn in growth of 9.2% in 2010 and 8.8% in 2011. The main driving factors behind growth in general, and behind recovery in particular, were the robust economic structure and solid banking sector, the addition of the Middle East and other “new” markets to the export portfolio, as well as prudent government fiscal and investment policies. Special political and economic attention has been paid to investments in strategic sectors such as construction and infrastructure – with particular focus on foreign direct investments (FDI) - and also to the diversification of production in the Turkish industrial and service sectors. This has led to an increased and relatively high level of stabilisation for per capita incomes (approx. 10,000 USD), unemployment (officially 9-10%) and private consumption. Turkey is categorised by the World Bank as an upper-middle income country and has reached the ‘Top 20’. However, as predicted by many economists domestically and internationally, since 2012 Turkey’s economic growth has progressed more slowly, at a lower level. The annual GDP was 2.2% in 2012 and has been estimated at below 4% for 2013 and 2014. The government has thus adapted to changing economic conditions by decreasing the annual growth rate target from 7% to 5% for 2014-2018, although Turkey is maintaining its ambitious goal of becoming a global Top 10 economy by 2023, the 100th anniversary of the Republic. There are some key reasons for the relative slowdown of the Republic. There are some key reasons for the relative slowdown of Turkish growth. In 2011, the current account deficit reached 10% of GDP, a level that is considered threatening to the overall economic balance as it hinders government efforts to refinance investments. A year later, the deficit decreased back to 7%; however, with energy imports as the main driver of the growing economy, the range of options for the government to change this trend is limited. As a result, the government and Central Bank were obliged to implement a more restrictive fiscal policy in order to avoid an overheating of the economy and to counterpoise the U.S. low interest policy, which had led to an inflow of “hot money” from foreign investors into emerging markets such as Turkey. As of autumn 2008, the Central Bank lowered the key interest rates from 16.75% to 4.5% (end of 2013), which on the one hand led to a more controllable growth rate, but also to a weakening of the Turkish Lira and an inflation rate increase from 6.3% (2009) to 7.4% (end of 2013). In order to offset the U.S. Federal Bank’s changed fiscal policy in the second half of 2013, Turkey had to re-establish the stability of its currency and investments (especially FID.), deciding in January 2014 to increase the key interest rate to 10%. It remains to be seen what consequences this move to a relatively moderate interest level will have on the Lira and the investment climate, as well as on employment rates and consumption. In this climate of higher economic vulnerability combined with a decade of constant reform and adaptation to changing market conditions, and also in view of the latest political developments and the election period 2014/15, trust in the country’s economic and political stability is one of the important goods for investors. The Erdogan government is therefore portraying itself as a powerful actor in control of the country’s economic and political transformation.

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