The Turkish economy continued to move ahead of many other countries in 2013, especially in terms of its gross domestic product (GDP) growth, foreign trade and stocks performance for the most part of the year…
The Turkish economy continued to move ahead of many other countries in 2013, especially in terms of its gross domestic product (GDP) growth, foreign trade and stocks performance for the most part of the year, yet the threats, such as excessive sensitivity to external shocks, the current account deficit (CAD) and growth that fails to lower unemployment, also continued to hang over the economy’s head like the sword of Damocles. But the main risk to the economy this year was political ambiguity.
Overall the economy performed well, continuing its high quarterly growth rates. The country’s GDP registered a growth rate of 3 percent, 4.5 percent and 4.4 percent in the first three quarters respectively. The economic growth in the same nine-month period of the previous year was 4 percent. The unemployment rate, however, climbed to 9.9 percent as of September, a rise of 0.8 percent above the same month of the previous year. In terms of inflation, the central bank’s policies were successful in maintaining a steady rate. The consumer price index (CPI) was 6.16 percent in December 2012, and this edged up to 7.8 percent in November 2013. The CAD was $39.55 billion in the January-October period of 2012, and it rose to $51.9 billion in the same period this year.
The Turkish economy started the year with encouraging statements from international credit rating agencies. Standard and Poor’s (S&P) raised Turkey’s rating from BB to BB+, one notch below the level of investable country status. Fitch had already upgraded Turkey to investible status in the last quarter of 2012, which was followed by Moody’s, the Canadian Dominion Bond Rating Services (DBRS) and the Japan Credit Rating Agency (JCR) in May. This was very welcome news for Turkey, raising hopes that the economic plane was now ready for take off. The government announced the launch of ambitious projects such as the construction of a third İstanbul airport, a third bridge over the Bosporus and a nuclear power plant in Sinop. Each of these projects would require a fortune to complete, and the single-party government’s promise of continued stability and the country’s relatively easy access to foreign loans suggested that financing these massive projects would be straightforward.
But reality did not match our expectations. A massive wave of anti-government demonstrations erupted in late May after the police raided a sit-in protest in Taksim’s Gezi Park in İstanbul, destroying the tents of campaigners who were passively resisting the construction of a shopping mall in the public park. This unleashed a widespread furor over the government’s increasingly authoritarian governance. In turn, it caused a loss of market confidence while raising concerns over the sustainability and stability of the current system. After several weeks of clashes on streets, tensions decreased and the government was able to restore order. However, it encountered much worse in December, when massive corruption and bribery investigations forced Prime Minister Recep Tayyip Erdoğan to reshuffle his Cabinet. The government appears to be losing legitimacy while it tries desperately to stifle the judiciary and prevent it from delving into the corruption allegations. In this latest challenge, the markets were severely affected. The lira lost more than 5 percent of its value against the dollar in a week, reaching a record low of TL 2.17. The stock market plummeted, with an immense outflow of risk-sensitive foreign capital. No one knows what will happen next: the eruption of a brewing crisis or merely a postponed ascent?
When assessing external factors, the ongoing crisis should first be considered. The US Federal Reserve’s monetary decisions were one of the most significant factors in the Turkish economy during 2013. The US Central Bank gave mixed signals about the continuation of its monetary expansion program, known as quantitative easing (QE), according to which the Fed purchased $85 billion in assets every month to improve liquidity. In May, Federal Reserve Chairman Ben Bernanke implied that QE might be tapered off, which echoed strongly, particularly in emerging economies such as Turkey. The possibility that QE might come to a grinding halt caused US interest rates to adjust upwards, creating a magnet effect that attracted portfolio investment back to the US, to the detriment of emerging economies.
This ambiguity continued until September, when Bernanke finally stated that the program would continue until all indicators pointed to a US recovery from the ongoing economic crisis, which many commentators believed would not occur before March 2014. This partial relief restored confidence to large foreign investors in Turkey and other emerging economies, which promise better returns despite their higher risk premiums. Bernanke will leave his post in February 2014, so investors have been paying attention to the speculation about possible candidates. US President Barack Obama, taking the public’s pulse by discussing possible candidates, found that money markets in the US and abroad opposed candidates who would terminate QE. Eventually, Obama nominated Janet Yellen as Bernanke’s successor. Yellen’s appointment, after approval from the Senate Banking Committee in November, eased market concerns. But in December, Bernanke announced the Fed’s decision to slash its purchases by $10 billion per month. Turkey read this as bad news, predictably, and the market reaction was negative.
To understand the Turkish economy’s performance, it is also necessary to look at developments in the eurozone, Turkey’s largest export destination. The eurozone continued to struggle against the global economic crisis and was able to achieve only moderate growth in its GDP. Still, growth rates were not steady or even across the continent. The countries worst affected by the crisis, such as Greece, Spain and Italy, remained sluggish while Germany continued to power through. Unemployment rates were not greatly decreased.
•For the first time since taking loans from the International Monetary Fund (IMF) half a century ago, Turkey was able to stay completely debt-free with the IMF by paying its last installment of $421 million.
•In November 2013, exports reached the highest-ever monthly figure at $13.78 billion, rising 8.8 percent above the same month of the previous year.
• The Asset Peace program attracted TL 10.5 billion, from which the state took TL 209 million in tax revenue.
• Total gold imports reached the highest figure in history with 270,669 kilograms in the first 11 months of the year.
• The Central Bank’s reserves hit a historic high on Dec. 13 with $135.96 billion.
• Economy Minister Zafer Çağlayan stepped down on Dec. 26 after his son was arrested for involvement in bribery.