No time for euphoria as Turkey named Europe's fastest growing economy
The Turkish Statistics Institute put the economic growth rate for the final quarter of 2011 at 5.2 percent, bringing down the 9.6 percent attained in the first three quarters to an 8.5 percent average for the full year. (Photo: AA)
Official data announced on Monday showed that Turkey's economy expanded by 8.5 percent last year at fixed prices, on top of the 8.9 percent recorded a year earlier, becoming the fastest growing economy in all of Europe and within the larger Organization for Economic Cooperation and Development (OECD), which includes the US, Japan, Canada and South Korea among other non-European nations.
The Turkish Statistics Institute (TurkStat) put the economic growth rate for the final quarter of 2011 at 5.2 percent, bringing down the 9.6 percent attained in the first three quarters to an 8.5 percent average for the full year. With such growth, Turkey's gross domestic product (GDP) neared the TL 1.3 trillion mark at current prices last year, maintaining the country's place as the world's 16th largest economy. Per capita GDP increased to $10,444, the official bureau of statistics also said.
Turkey's achievements in the field of economic growth have long been on the radar of international observers. With the recently announced 2011 figure, the country has further strengthened its position on the global scene. The Turkish GDP's annual average growth for the 10 years between 2002 and 2011 was 5.4 percent. Yet due to the well established risks it faces this year, the country needs to avoid too much complacency.
Commenting on the 2011 growth figures, Ercan Uygur, president of the Ankara-based Turkish Economic Association (TEK), said the rate of 8.5 percent economic growth has met the expectations of experts as well as the government estimation. But noting the signs of economic slowdown such as declining rates of production in certain sectors since the last quarter of 2011, he explained that a slowdown in economic activity is strongly expected this year due to worsening economic conditions abroad as well as problems concerning the current account deficit (CAD) issue at home. However, unlike the International Monetary Fund (IMF) predictions of close to zero percent growth in 2012, he suggested that what can be described as a soft-landing is more likely for the country's economy.
“A destructive decline in [economic] growth is out of the question and the rate of 4 percent mentioned in the government’s Medium-term Economic Program [OVP] is logical,” he said in a phone interview with Today’s Zaman.
Also speaking to Today’s Zaman, Selim Işıklar from Info Securities Inc. expressed that despite the rising oil prices, the economic growth rate is satisfactory and shows that the Turkish economic model is rightly focused on exports now. Stating his expectations for 2012, he said the export figures of February and March, combined with gas and oil prices in the first quarter and an upward pressure from the Central Bank of Turkey on the value of the lira, show that the country’s economy keeps growing while Turkey reduces its foreign trade deficit. He predicted that the government’s expectations of economic growth will even be surpassed since Turkey’s construction sector, which operates in many countries abroad, has suffered from the Arab Spring in the Middle East, where it had major projects, and would make up for its losses this year. According to him, a solution is now within grasp for the debt crisis in Europe which heavily impacted economies worldwide, including Turkey, in the past two to three years.
Despite the optimism Uygur, Işıklar and many other experts hold, they also acknowledge the unbeaten risk of a hard landing, a sudden stop of economic growth with high inflation and a troubled balance of payments. The latest figures also increased worries that the country’s economy is now headed for much slower growth than it had in the past two years. Turkey’s industrial production grew by only 1.5 percent in January compared to a year earlier. That was far lower than the expected 3.5 percent rise, and even worse, according to TurkStat, industrial production actually dropped by 1.3 percent year-on-year when adjusted to offset seasonal and calendar effects. The country’s industrial production increased by 8.9 percent for the full year in 2011. It had jumped even more, 13.1 percent, a year earlier.
The economic slowdown seems to have continued in February, too. The capacity utilization rate in manufacturing dropped from 74.9 percent in January to 72.9 percent in February, while the credit expansion rate sank to 25 percent last month from 30 percent at the beginning of this year.
Along with Turkey’s much lauded economic growth -- particularly in the past two years -- came a consumer inflation rate of over 10 percent and a CAD at around 9 percent of GDP. The government and the central bank, however, have maintained that a soft landing to a more sustainable growth rate of around 5 percent is to be achieved, dismissing all doomsday scenarios for the economy.
Following the announcement of the 2011 economic growth figure by TurkStat, a number of Cabinet ministers have come out and particularly highlighted that a soft landing is to be achieved but have remained prudential as risks still linger at a time when there is a possibility of seeing much higher oil prices because of the nuclear tension between Iran and the West.
Deputy Prime Minister Ali Babacan, who also oversees all the economic policies of the government in his capacity as the head of its inter-ministerial Economy Coordination Board (EKK), said Turkey has been on the right path to have a more sustainable economic growth rate at around 5 percent per year thanks to its domestic dynamics. For him, an improvement in economic outlook abroad -- an easing of tension surrounding Iran’s controversial nuclear program and the European financial crisis -- will only facilitate its task, he said in a written statement on Monday. Finance Minister Mehmet Şimşek is of the same view as well. Speaking to the Anatolia news agency, he said a 4 percent economic expansion seems to be highly likely for this year. “The latest figures indicated that the slow landing process for the economy is continuing in a balanced way in parallel to our targets. Whereas there was a deceleration in the rate of growth in [domestic] consumption and investments, the impact of foreign trade to economic growth turned to positive,” he said.
Joining him was Economy Minister Zafer Çağlayan, with a little bit more optimism. Noting that he was “not surprised at all” with the 8.5 percent GDP growth for 2011, the minister projected this year’s economic growth at 5 percent.
In the face of a hard landing, the central bank joined forces with the government to implement measures to slow down the national economy from the past two years’ over-8 percent growth to around 5 percent for this and coming years. Among those measures were a central bank policy of requiring banks to keep more of their reserves at the central bank’s accounts without earning interest and higher taxes on certain products heavily imported from abroad such as cars and mobile phones.