Turkey’s economy grew above expectations in first quarter of 2018
Turkey’s economy is projected to grow above potential, buoyed by improved external demand conditions and supportive policies on multiple fronts—expansionary fiscal policy, state loan guarantees, procyclical macroprudential policy, and an accommodative monetary stance. Growth is projected at 4.4 percent in 2018 and 4.0 percent in 2019, an upward revision of 0.9 percentage point for 2018 and 0.5 percentage point for 2019 relative to the October WEO.
The economy of Turkey is defined as an emerging market economy by the IMF. Turkey is among the world’s developed countries according to the CIA World Factbook. Turkey is also defined by economists and political scientists as one of the world’s newly industrialized countries. Turkey has the world’s 17th-largest nominal GDP, and 13th-largest GDP by PPP. The country is among the world’s leading producers of agricultural products; textiles; motor vehicles, ships and other transportation equipment; construction materials; consumer electronics and home appliances.
Turkey has the world’s 17th-largest nominal GDP, and 13th-largest GDP by PPP. The country is a founding member of the OECD (1961) and the G-20 major economies (1999). Since December 31, 1995, Turkey is also a part of the EU Customs Union.
Turkey has been meeting the “60 percent EU Maastricht criteria” for public debt stock since 2004. Similarly, from 2002 to 2011, the budget deficit decreased from more than 10 percent to less than 3 percent, which is one of the EU Maastricht criteria for the budget balance.
The CIA classifies Turkey as a developed country. Turkey is often classified as a newly industrialized country by economists and political scientists; while Merrill Lynch, the World Bank, and The Economist describe Turkey as an emerging market economy.
The World Bank classifies Turkey as an upper-middle income country in terms of the country’s per capita GDP in 2007. Mean graduate pay was $10.02 per man-hour in 2010. Turkey’s labour force participation rate of 56.1% is by far the lowest of the OECD states which have a median rate of 74%.
According to a survey by Forbes magazine, Istanbul, Turkey’s financial capital, had a total of 37 billionaires in 2013, ranking 5th in the world behind Moscow (84 billionaires), New York City (62 billionaires), Hong Kong (43 billionaires) and London (43 billionaires).
In 2009 the Turkish government introduced various economic stimulus measures to reduce the impact of the 2007–2012 global financial crisis such as temporary tax cuts on automobiles, home appliances, and housing. As a result, the production of durable consumer goods increased by 7.2%, despite a decrease in automotive production.
The Turkish Stock Market and credit rating agencies have responded positively. According to The Economist, share prices in Turkey nearly doubled over the course of 2009. On 8 January 2010, International credit rating agency Moody’s upgraded Turkey’s rating one notch. In 2012, Fitch upgraded Turkey’s credit rating to investment grade (long-term foreign currency Issuer Default Rating (IDR) was upgraded to BBB- (from BB+) and long-term local currency IDR was upgraded to BBB (from BB+)) after an 18-year gap; this was followed by a ratings upgrade by Moody’s in May 2013, as the service lifted Turkey’s government bond ratings to the lowest investment grade Baa3. The decision is Moody’s first investment-grade rating for Turkey in two decades and the service stated in its official statement that the nation’s “recent and expected future improvements in key economic and public finance metrics” was the basis for the ratings boost.
Turkey’s impressive economic performance over the past 14 years has encouraged experts and international institutions to make confident projections about Turkey’s economic future. For example, according to the OECD, Turkey is expected to be one of the fastest growing economies among OECD members during 2015-2025, with an annual average growth rate of 4.9 percent.
Turkish companies’ foreign direct investment outflow has increased by 10 times over the past 15 years, according to the 2017 Foreign Investment Index.
The Borsa Istanbul (BIST) 100 Index, the benchmark index of Turkey’s stock market, set a new record high at 95,735 points on May 10, 2017.
As of January 5, 2018, the Index reached 116,638 points
Main economic sectors
As of March 2007, Turkey is the world’s largest producer of hazelnuts, cherries, figs, apricots, quinces and pomegranates; the second-largest producer of watermelons, cucumbers and chickpeas; the third-largest producer of tomatoes, eggplants, green peppers, lentils and pistachios; the fourth-largest producer of onions and olives; the fifth-largest producer of sugar beet; the sixth-largest producer of tobacco, tea and apples; the seventh-largest producer of cotton and barley; the eighth-largest producer of almonds; the ninth-largest producer of wheat, rye and grapefruit, and the tenth-largest producer of lemons. Turkey has been self-sufficient in food production since the 1980s. In the year 1989, the total production of wheat was 16.2 million tonnes, and barley 3.44 million tonnes. The agricultural output has been growing at a respectable rate. However, since the 1980s, agriculture has been in a state of decline in terms of its share in the total economy.
The country’s large agricultural sector accounted for 29.5% of the employment in 2009. Historically, Turkey’s farmers have been fairly fragmented. According to the 1990 census, “85% of agricultural holdings were under 10 hectares and 57% of these were fragmented into four or more non-contiguous plots.” Many old agricultural attitudes remain widespread, but these traditions are expected to change with the EU accession process. Turkey is dismantling the incentive system. Fertilizer and pesticide subsidies have been curtailed and remaining price supports have been gradually converted to floor prices. The government has also initiated many planned projects, such as the Southeastern Anatolia Project (G.A.P project). The program includes 22 dams, 19 hydraulic power plants, and the irrigation of 1.82 million hectares of land. The total cost of the project is estimated at $32 billion. The total installed capacity of power plants is 7476 MW and projected annual energy production reaches 27 billion kWh. The physical realization of G.A.P. was 72.6% as of 2010.
The livestock industry, compared to the initial years of the Republic, showed little improvement in productivity, and the later years of the decade saw stagnation. However, livestock products, including meat, milk, wool, and eggs, contributed to more than 1⁄3 of the value of agricultural output. Fishing is another important part of the economy; in 2005 Turkish fisheries harvested 545,673 tons of fish and aquaculture.
The EU imported fruit and vegetables from Turkey worth €738.4 million up to September 2016, an increase of 21% compared to the same period in 2015, according to Eurostat data processed by FEPEX. Turkey is the EU’s fourth largest non-EU vegetable supplier and the seventh largest fruit supplier, and the European Commission has already started the formal process for the modernization of the Customs Union Agreement.
Consumer electronics and home appliances
Turkey’s Vestel is the largest TV producer in Europe, accounting for a quarter of all TV sets manufactured and sold on the continent in 2006. By January 2005, Vestel and its rival Turkish electronics and white goods brand Beko accounted for more than half of all TV sets manufactured in Europe. Another Turkish electronics brand, Profilo Telra, was Europe’s third-largest TV producer in 2005. EU market share of Turkish companies in consumer electronics has increased significantly following the Customs Union agreement signed between the EU and Turkey: in color TVs from 5% in 1995 to more than 50% in 2005, in digital devices from 3% to 15%, and in white goods from 3% to 18%.
Textiles and clothing
Turkish companies made clothing exports worth $13.98 billion in 2006; more than $10.67 billion of which (76.33%) were made to the EU member states.
Motor vehicles and automotive products
In 2008 Turkey produced 1,225,400 motor vehicles, ranking as the fifth-largest producer in Europe (behind the United Kingdom and above Italy) and the twelfth-largest producer in the world.
The automotive industry is an important part of the economy since the late 1960s. The companies that operate in the sector are mainly located in the Marmara Region. With a cluster of car-makers and parts suppliers, the Turkish automotive sector has become an integral part of the global network of production bases, exporting over $22.94 billion worth of motor vehicles and components in 2008.
Turkey’s annual auto exports, including trucks and buses, surpassed 1 million units for the first time in 2016 as foreign automakers’ investment in new models and a recovery in its mainstay European market lifted shipments. According to industry group the Automotive Manufacturers Association, or OSD, Turkey exported 1.14 million units in 2016, up 15% from the year before. Auto exports hit a record high for the fourth straight year. Production grew 9% year on year in 2016 to 1.48 million units, setting a new record for the second consecutive year. Nearly 80% of vehicles produced in Turkey were exported.
Multiple unit trains, locomotives and wagons
TÜLOMSAŞ (1894), TÜVASAŞ (1951) and EUROTEM (2006) are among the major producers of multiple unit trains, locomotives and wagons in Turkey, including high-speed EMU and DMU models.
Turkey is one of the world’s leading shipbuilding nations; in 2007 Turkish shipyards ranked 4th in the world (behind China, South Korea and Japan) in terms of the number of ordered ships, and also 4th in the world (behind Italy, USA and Canada) in terms of the number of ordered mega yachts.
Turkey has many modern armament manufacturers. Annual exports reached $1.6 billion in 2014. MKEK, TAI, Aselsan, Roketsan, FNSS, Nurol Makina, Otokar, and Havelsan are major manufacturers. On July 11, 2002, Turkey became a Level 3 partner of the F-35 Joint Strike Fighter (JSF) development program. TAI builds various aircraft types and models, such as the F-16 Fighting Falcon for the Turkish Air Force. Turkey has recently launched domestically built new military/intelligence satellites including a 0.8m resolution reconnaissance satellite (Project Göktürk-1) for use by the Turkish Armed Forces and a 2m resolution reconnaissance satellite (Project Göktürk-2) for use by the Turkish National Intelligence Organization. Other important products include the Altay main battle tank, A400M, TAI TFX, TF-2000 class AAW frigate, Milgem class corvette, TAI Anka UAV, Aselsan İzci UGV, T-155 Fırtına self-propelled howitzer, J-600T missile, T-129 attack helicopter, Roketsan UMTAS anti-tank missile, Roketsan Cirit laser-guided rocket, Panter Howitzer, ACV-300, Otokar Cobra and Akrep, BMC – Kirpi, FNSS Pars 6×6 and 8×8 APC, Nurol Ejder 6×6 APC, TOROS artillery rocket system, Bayraktar Mini UAV, ASELPOD, and SOM cruise missile.
Turkey ranks 8th in the list of countries by steel production. In 2013, total steel production was 29 million tonnes. Turkey’s crude steel production reached a record high of 34.1 million tons in 2011. Notable producers (above 2 million tonnes) and their ranks among top steel producing companies.
Erdemir (7.1 million tonnes) (47th) (Only Erdemir-Turkey; Erdemir-Romania is not included)
Habaş (4.4 million tonnes) (72nd)
İçdaş (3.6 million tonnes) (76th)
Diler (2.3 million tonnes) (108th)
Çolakoğlu (2.1 million tonnes) (110th)
Science and technology
TÜBİTAK is the leading agency for developing science, technology and innovation policies in Turkey. TÜBA is an autonomous scholarly society acting to promote scientific activities in Turkey. TAEK is the official nuclear energy institution of Turkey. Its objectives include academic research in nuclear energy, and the development and implementation of peaceful nuclear tools.
Turkish government companies for research and development in military technologies include Turkish Aerospace Industries, Aselsan, Havelsan, Roketsan, MKE, among others. Turkish Satellite Assembly, Integration and Test Center is a spacecraft production and testing facility owned by the Ministry of National Defence and operated by the Turkish Aerospace Industries. The Turkish Space Launch System is a project to develop the satellite launch capability of Turkey. It consists of the construction of a spaceport, the development of satellite launch vehicles as well as the establishment of remote earth stations.
Construction and contracting sector
The Turkish construction and contracting industry is one of the leading, most competitive and dynamic construction/contracting industries in the world. In 2009 a total of 33 Turkish construction/contracting companies were selected for the Top International Contractors List prepared by the Engineering News-Record, which made the Turkish construction/contracting industry the world’s second-largest, ranking behind those of China.
The Central Bank of the Republic of Turkey (Türkiye Cumhuriyet Merkez Bankası) was founded in 1930, as a privileged joint-stock company. It possesses the sole right to issue notes. It also has the obligation to provide for the monetary requirements of the state agricultural and commercial enterprises. All foreign exchange transfers are exclusively handled by the central bank.
Originally established as the Ottoman Stock Exchange (Dersaadet Tahvilat Borsası) in 1866, and reorganized to its current structure at the beginning of 1986, the Istanbul Stock Exchange (ISE) is the sole securities market of Turkey. During the 19th and early 20th centuries, Bankalar Caddesi (Banks Street) in Istanbul was the financial center of the Ottoman Empire, where the headquarters of the Ottoman Central Bank (established as the Bank-ı Osmanî in 1856, and later reorganized as the Bank-ı Osmanî-i Şahane in 1863) and the Ottoman Stock Exchange (1866) were located. Bankalar Caddesi continued to be Istanbul’s main financial district until the 1990s, when most Turkish banks began moving their headquarters to the modern central business districts of Levent and Maslak. In 1995, the Istanbul Stock Exchange moved to its current building in the Istinye quarter. The Istanbul Gold Exchange was also established in 1995. The stock market capitalisation of listed companies in Turkey was valued at $161,537,000,000 in 2005 by the World Bank.
Until 1991, establishing a private sector bank in Turkey wasn’t easy and was subject to strict government controls and regulations. On 10 October 1991 (ten days before the general elections of 20 October 1991) the ANAP government of Prime Minister Mesut Yılmaz gave special permissions to five prominent businessmen (who had close links to the government) to establish their own small-scale private banks. These were Kentbank (owned by Süzer); Park Yatırım Bankası (owned by Karamehmet); Toprakbank (owned by Toprak); Bank Ekspres (owned by Betil); and Alternatif Bank (owned by Doğan.) They were followed by other small-scale private banks established between 1994 and 1995, during the DYP government of Prime Minister Tansu Çiller, who introduced drastic changes to the banking laws and regulations; which made it very easy to establish a bank in Turkey, but also opened many loopholes in the system. In 1998, there were 72 banks in Turkey; most of which were owned by construction companies that used them as financial assets for siphoning money into their other operations. As a result, in 1999 and 2001, the DSP government of Prime Minister Bülent Ecevit had to face two major economic crises that were caused mostly by the weak and loosely regulated banking sector; the growing trade deficit; and the devastating İzmit earthquake of 17 August 1999. The Turkish lira, which was pegged to the U.S. dollar prior to the crisis of 2001, had to be floated, and lost an important amount of its value. This financial breakdown reduced the number of banks to 31. Prime Minister Bülent Ecevit had to call the renowned economist Kemal Derviş to tidy up the economy and especially the weak banking system so that a similar economic crisis would not happen again.
At present, the Turkish banking sector is among the strongest and most expansive in East Europe, the Middle East and Central Asia. During the past decade since 2001, the Turkish lira has also gained a considerable amount of value and maintained its stability, becoming an internationally exchangeable currency once again (in line with the inflation that dropped to single-digit figures since 2003.) The economy grew at an average rate of 7.8% between 2002 and 2005. Fiscal deficit is benefiting (though in a small amount) from large industrial privatizations. Banking came under stress beginning in October 2008 as Turkish banking authorities warned state-run banks against the pullback of loans from the larger financial sectors. More than 34% of the assets in the Turkish banking sector are concentrated in the Agricultural Bank (Ziraat Bankası), Housing Bank (Yapı Kredi Bankası), Isbank (Türkiye İş Bankası) and Akbank. The five big state-owned banks were restructured in 2001. Political involvement was minimized and loaning policies were changed. There are also numerous international banks, which have branches in Turkey. A number of Arabian trading banks, which practice an Islamic banking, are also present in the country.
Government regulations passed in 1929 required all insurance companies to reinsure 30% of each policy with the Millî Reasürans T.A.Ş. (National Reinsurance Corporation) which was founded on February 26, 1929. In 1954, life insurance was exempted from this requirement. The insurance market is officially regulated through the Ministry of Commerce.
After years of low levels of foreign direct investment (FDI), in 2007 Turkey succeeded in attracting $21.9 billion in FDI and is expected to attract a higher figure in following years. A series of large privatizations, the stability fostered by the start of Turkey’s EU accession negotiations, strong and stable growth, and structural changes in the banking, retail, and telecommunications sectors have all contributed to the rise in foreign investment.
In recent years, the chronically high inflation has been brought under control and this has led to the launch of a new currency, the “New Turkish lira”, on January 1, 2005, to cement the acquisition of the economic reforms and erase the vestiges of an unstable economy. On January 1, 2009, the New Turkish lira was renamed once again as the “Turkish lira”, with the introduction of new banknotes and coins.
Hedging & Refinancing Options
According to the Country Risk Classification published by the OECD, hedging and refinancing options are available.