The untold story of Turkey’s soft landing
I was recently talking to business people interested in green field investments. Turkey is a land of opportunities for the foreign real estate sector. However, although the medium-term perspective is always bright here, the short term makes people think twice. Let me briefly go over Turkey’s growth experience of the last four years and its prospects for 2013.
The last four years have been unusually interesting in Turkey. In 2009, Turkey was in the top ten list of fastest contracting economies, with a negative growth rate of 4.7 percent. However, in 2010 and 2011 we were in the top ten fastest growing economies, our 9 percent growth rate competing with China. Now, in 2012, Turkey is in a process of much-awaited and carefully engineered slowdown. That’s four economic seasons in as many years. I can’t blame the business community for being a bit confused.
The engineered slowdown of 2012 has so far earned international praise and a Fitch upgrade. This kind of environment can lead people to overlook the nuances of the situation. Let me tell you my observations.
Firstly, our timing is off. Turkey’s problem was its simultaneous high growth and high current account deficit. Now, we have lowered growth but kept the deficit. Does that make Turkey less vulnerable? I do not think so.
That leads me to my second point on Turkey’s current account financing structure. Regardless of the bump in global standing, our financing still very much operates on the short term. One would think that after uncontrolled growth and the engineered slowdown, the third act of Turkey’s economic performance would be in finance. That would truly bring about a new norm in Turkey, one that we can only guess today.
Thirdly, the slowdown is due to a steep decline in domestic demand. The contribution of domestic demand to growth has declined to 10 percent, from above 50 percent. That is bad for the business community, which sees a rising number of bouncing checks, unpaid IOUs and bank NPLs. Intentional or not, the slowdown is not good for business. We can expect a political backlash soon.
Now, let’s turn to the engineered slowdown’s prospects in 2013. Recession in Europe only increases the uncertainty about the prospects of Turkey’s economy. But I see a strong positive and green agenda based on deepening economic ties with Europe. This could be a win-win situation for us all.
Another source of uncertainty is the Kurdish issue. There, the decision of the government to allow Kurdish to be used in Turkish courtrooms is a step in the right direction. Lowering the tension in the short term and developing a positive agenda with the Kurds in the medium term looks to be the prevailing attitude, despite all the hateful rhetoric. The new constitution could be a solid basis of a medium-term positive agenda with the Kurds.
A final element muddying the waters in 2013 is Syria. That however, is an issue beyond Turkey’s control. A definitive in Syria can only come through various international factors. Ankara, thankfully, seems to be aware of that.
Turkey has always learned from its mistakes. We tried again and tried harder.