The Turkish economy’s big dilemma
As the global economy has recently entered another crazy era with the plunging oil prices down to $60 per barrel, the Turkish economy is again in the middle of opposing trends; old and new “norms.”
The tumbling oil prices are good for the Turkish economy, which has been suffering from very high current account deficits due to its high dependence to foreign energy sources. The fall in oil prices enable the country to decrease its deficit. Even the government has cut its deficit expectation down to around 5 percent of the GDP for the next year.
While the International Energy Agency (IEA) said this week oil prices will begin to increase by the next year with the expected decreases in energy investments of the U.S. and Brazil, no one is really sure what will happen.
Even to some analysts, Saudi Arabia, the world’s second biggest oil producer, just after Russia upon the IEA data, could afford its production costs even when oil prices drop down to almost $20 per barrel, as its own oil costs very little at around $5-6 per barrel to be taken out of the ground.
It is also highly unknown as to which point the U.S. will continue to increase its oil production, which is now the third biggest in the world, and is expected to export oil in the coming years.
The problem here is to which point Russia and other oil producer countries, most of which are just next to Turkey, could endure. With Russia already hit by Western sanctions and its firms facing $500 billion in external debt, the country needs the price of oil to reach $100 per barrel to meet its budget goals, and Iran, hit even harder by sanctions, needs the price to reach $160 to break even, according to Deutsche Bank.
The worst seems to be happening for Russia right now, as almost all of the country’s economic activity is based on energy revenues.
Russian Prime Minister Dimitry Medvedev voiced yesterday the risk of a deep recession for the Russian economy for the first time.
Turkey, which is enjoying the positive sides of the plunging oil prices right now, may be one of the worst affected countries from the economic crisis in Russia and the neighboring energy-rich countries, but not diversified economies.
Russia is Turkey’s fourth largest export market. It is quite possible for the country to slash its imports to cut the costs unless oil prices are recovered soon. If the Russian crisis spills over Caucasia, Turkey may lose one of its main export regions, composed of Russia and the CIS countries, with a volume of $15 billion.
The number of Russians visiting Turkey fell by 18.45 percent in November from the same period the year earlier, according to the latest statistics published by the tourism ministry.
Arrivals were recorded from 62,961 Russians in November. In November 2013, 77,210 Russians had visited Turkey, up by 6.11 percent on 2012.
More than 4.2 million Russian tourists visited Turkey in 2013, coming second only to the 5 million plus Germans who came out of the total of nearly 35 million. That makes Turkey the sixth most tourist-receiving country in the world.
The number of analysts who expect a rise in oil prices is fortunately not that low. Another collapse in the Russian economy, which was the case in the 1980s and in 1998, will hit many economies, including Turkey.
These fluctuating times may, however, be a real break for these economies to reflect upon how to diversify their economies and trade markets and make robust structural economic reforms.