For a population of 75 million, the Turkish GDP has reached around €550bn (annualised, at Q3 2011), which ranks the country just behind the Netherlands (€590bn) in Europe. As a member of the OECD since 1961, Turkey plays a strategic role at the intersection of the Middle East, Russia and Europe – and wishes to join the European Union.
Promises promises
The country’s size and economic/industrial development are intermediate while it is one of the most promising countries in the Eastern European region.
Besides its unique geographical position, the Turkish economy has many benefits: an industrial base that includes national groups, the presence of large foreign companies, and a network of dynamic smaller businesses that are active in export markets. Quality structural management over the past ten years has enabled the country to adapt to the requirements of a modern economy.
The combination of reform and privatisation has moved the country forward.
Turkey fared much better than many other countries during the crisis and came out of it sooner. The pace of growth (around 8%) does cause delicate problems for economic and monetary policy. Authorities have to ensure that growth is compatible with orthodox methods of policy management – a tricky task when the annual rate of inflation exceeds 11% (April) and that the trade deficit is high (10% of GDP in 2011).
Currency reserves ($79bn, equivalent to a year’s deficit) and external debt ($310bn) do not leave much room for manoeuvre. Capital flows were therefore brutal and significant in 2011, leading to the severe depreciation of the Turkish lira.
And on the negative side…
The authorities cannot leave the country as financially vulnerable as it was in 2011, when Turkey had to face a severe external debt crisis, and had to ask for IMF assistance. In 2010, the Turkish central bank also had to fight against the rise of its currency while trying to keep a lid on inflation and on the fast growth of credit – partly responsible for the current deficit.
The trade deficit, which is principally due to energy, is the country’s main weakness. Having regularly widened from 2009 to 2011, the figures were better than expected recently, with the trade deficit falling to € 7.3bn in March (after hitting €10.4bn in September 2011).
The wider region offers a contrasting group – with a huge country such as Russia, and others of a much more modest size whose development has made them closer to Western Europe. These varying degrees of maturity co-exist – Poland is not comparable to Russia, for example – offering investors complementary opportunities of growth and stability, while benefiting from the dynamics of the region as a whole.
