Turkey not sheltered against wave of European debt crisis

The Turkish economy is by no means sheltered against the eurozone’s woes, as its economy vastly depends on the indebted European economies, official figures and forecasts once again showed on Nov. 11.

The country’s finances are in a good shape currently, but it has no room for looser policies, economists agreed.

The Central Bank’s routine expectation survey revealed Nov. 11 raised the projection for the country’s yearend current account deficit forecast to $73.6 billion from $72.65 billion only two weeks ago.

The revised yearend inflation projection was 8.01 percent in the second half of October. The first survey in November raised the expectation to 9.08 percent. The bank had warned of an inflation hike by the end of the year several times last month.

The forecast for the local currency’s value against the U.S. dollar dropped to 1.78 Turkish Liras from 1.85 liras.

The bank’s growth forecast is 6.8 percent this year and 3.7 percent for 2012.

The rapid growth in recent months was mainly dependent on domestic demand, according to Seyfettin Gürsel, head of Economic and Social Researches Center (BETAM) at Istanbul’s Bahçeşehir University.

”Turkey saw an investment booming in 2010 and 2011. It was related to domestic demand. But we are coming close to the end of such a growth model,” Gürsel said. Increasing exports is a must. The developments in Europe will have a negative effect. Turkey’s exports should grow faster than imports.”

Still, the ongoing eurozone problems tell the opposite. The European Commission warned on Nov. 11 that the EU economy could fall back into recession early next year.

Turkey stood at the negative side of the mutual trade balance with even the debt-hit Greece and Italy in the first nine months of the year, according to separate Economy Ministry data.

The country’s gap in trade with Italy in the first three quarters was $4.1 billion. Italy was the second biggest exporter to Turkey as of the end of October. The gap between Turkey and Greece in the same period was $775 million in favor of the latter.

Turkey’s exports increased to a record level of $111.38 billion, marking a raise by 20.18 percent in the period between January and October this year compared with the same period in 2010, according to figures by Turkey’s Exporters Assembly (TİM). What kept the exports high despite a slowdown in exports to European countries was the vivid businesses with countries such as Iraq, Russia and Saudi Arabia.

Turkish industrial production rose 1.5 percent in September from a month earlier, exceeding estimates and challenging Central Bank forecasts of a slowdown in growth. Output rose 6 percent from September 2010 when adjusted for the number of working days, according to data published by the government statistics agency website on Nov 11.

The figure “is significantly stronger than presumed by the markets,” Nilufer Sezgin, economist for Ekspres Invest in Istanbul, said in a report. It will probably raise “pressure on the Central Bank to let the interest rate settle at high levels in the so-called interest rate corridor.”

The Central Bank’s monetary policies, hot inflows from Arab countries and not lending from the International Monetary Fund were the positive factors that eased the Turkish economy in recent months, according to Dilek Yılmazcan, a financial law professor at Maltepe University.

“We will see how much it is eased in the upcoming days. We will not be that much comfortable if the hot inflows end,” she warned. “Some measures should be taken before the start of a crisis.”

Turkey has been enjoying some conjectural advantages, said Merih Paya of Istanbul University. Still, this may change, next year, Paya told the Anatolia news agency. “I think external balances constitute a very serious problem. Domestic balances also may shift to negative in 2012. Increasing interest rates, lower tax incomes and a drop in foreign capital inflows may also affect the domestic balances, he said. “We should behave with precaution.”