Mind the Gap


Turkish GDP grew 2.2% in 2012, down from 9.2% in 2010 and 8.8% in 2011. GDP stands at $786 billion, a figure that has tripled in nominal terms over the […]

Turkish GDP grew 2.2% in 2012, down from 9.2% in 2010 and 8.8% in 2011. GDP stands at $786 billion, a figure that has tripled in nominal terms over the last decade. Real GDP grew 62.57% over the 2002-2012 period, while GDP per capita managed to increase by 43.3% over the same period, according to IMF data. The economy grew 3% in 1Q2013, above expectations but perhaps not enough to reach the government’s end-of-year target of 4%. Nominal GDP per capita hit $10,504 in 2012, up from $3,492 in 2002 and a return to the previous high in 2008, with government estimates putting the 2015 figure at $12,859. The CAD, long considered the Turkish economy’s Achilles’ heel, declined by 38.6% to $47.5 billion in 2012. The CAD stands at 6% of GDP, still larger than the 5% the CBT considers more ideal. To keep the CAD in check, the CBT is targeting loan growth of 15% and is working to encourage saving, which is hovering around a lowly 15% of GDP, leaving the country dependent on foreign capital inflows. A war of words has developed, however, with high-ranking members of the government calling for the CBT to take its foot off the brakes and allow domestic demand to flourish.

Inflation fell over 2012 to reach an annual rate of 6.16%, due to weak domestic demand, a strong lira, and benevolent food inflation. The figure remained above the CBT target of 5%, however, suggesting domestic demand is picking up faster than predicted. As of June 2013, the inflation rate hit 8.3%, while the import of consumer and capital goods rose 13.3% and 10.5% year-on-year, respectively, suggesting demand is indeed increasing.

Unemployment continued to fall over 2012, reaching 9.2% by year’s end. The figure is slightly higher than the government’s target of 9%, with a target of 8.9% set for 2013.

FDI reached $12.4 billion in 2012, down 23% on 2011. The global rise of strategic investments and private equity funds, however, could land the country between $15 billion and $20 billion in 2013. This would be in line with the country’s Vision 2023 goals, which also envision a GDP of $2 trillion, $500 billion in exports, and a GDP per capita of $25,000.


Turkey’s CAD stood at $47.5 billion at end-2013, down 36.8% over the year due to decreased domestic demand, reflected in a 10% drop in passenger vehicle sales over the year, and efforts made to boost electricity production—installed capacity reached 57,000 MW at the end of 2012, up from 25,000 MW in 2002. Were it not for energy imports, Turkey would currently run an overall trade surplus. The current account also benefitted from increased gold exports to Iran in 2012, with $4.02 billion worth of the metal exported to the country in the first five months of the year alone. This trade, however, is likely to be restricted over 2013 as international sanctions targeting Iran tighten.

In that context, and on the back of growing consumer demand, the CAD expanded in the January-May period of 2013, hitting a figure of $31.92 billion, an increase of $5.8 billion over the same period the year before. The cause of the increase stemmed mainly from a $4.9 billion increase in the foreign trade deficit, which was recorded at $33.8 billion at the end of the first five months of the year. Gold exports, in line with sanctions on Iran, were down by $1.82 billion to $2.19 billion between January and May, compared to the same period the year before, negatively impacting the trade balance. An outflow of $1.5 billion in direct investment in May 2013 also contributed to a widening CAD over the first five months.


Merchandise exports increased from $135 billion in 2011 to $152.5 billion in 2012, while imports fell from $240.8 billion to $236.5 billion in the same period. The country’s merchandise exports for 2012 came to 0.83% of the global total, while the ratio of foreign trade volume to GDP was 49.5%. Between January and May 2013, exports increased 2.9%, while imports were up 8.1%. In 2012, the main export category was stones and metals, at $16.33 billion, up from $3.74 billion in 2011. The next top categories were vehicles, machinery, iron and steel, electrical goods and machinery, and textiles. The year’s main import items were hydrocarbon products, machinery, iron and steel, and electrical goods and machinery, according to TurkStat. In terms of trade partners, Germany represented 8.7% of exports, followed by Iraq (7.3%), the UK (5.3%), Italy (4.6%), and Russia (4.5%). The country’s main import partner was China, with 9.5% of the total, followed by Russia (9.4%), Germany (9.3%), the US (5.7%), and Italy (4.8%). The EU is Turkey’s largest export trading bloc, making up for 40.4% of total trade in the January-May 2013 period, up 3.6% in year-on-year terms. The EU also represents the largest source of Turkish imports, at 35.6% of the total during the same period, up 4.7% on the year before. Turkey’s share in the global export of services also rose to 0.97% in 2012, from 0.90% in 2011.

In terms of its trade framework, Turkey has 17 free trade agreements (FTAs) in force, including with the European Free Trade Association (EFTA), Macedonia, Bosnia-Herzegovina, Albania, Israel, Palestine, Morocco, Tunisia, Egypt, Syria, Georgia, Serbia, Montenegro, Chile, Jordan, South Korea, and Mauritius. The country is also carrying out negotiations with 14 countries, including Ukraine, Malaysia, the GCC, as well as several countries in South America and Africa. The country is also pursuing initiatives to begin negotiations with the US, Canada, Japan, Indonesia, Vietnam, Peru, several countries in Central America, Algeria, Mexico, and South Africa. Developing the FTA framework is seen as a vital component to driving up trade. Between 2000 and 2012, overall exports increased 446%, while exports to FTA partners were up 551%, according to the Ministry of Economy.


FDI inflows were down 23% from 2011 to $12.4 billion in 2012, in line with a global drop. The country is set to attract as much as $15 billion to $20 billion in 2013, according to Turkey’s International Investors Association (YASED), on the back of a global growth trend in strategic investment and private equity funds. Upcoming privatization tenders could also help drive up foreign investor interest, although that could depend on sovereign credit and investment ratings. Out of the $12.4 billion FDI total recorded in 2012, $9.3 billion were net capital inflows, while $416 million was other capital, and $2.6 billion was made up by real estate sales to foreign nationals. FDI stock totaled $181 billion as of end-2012, while the number of companies with foreign capital is 32,604, according to the Ministry of Economy. Turkey’s industrial sector, attractive with manufacturers looking to export to the region, drew 55% of FDI in 2012, while the remainder was destined for the services sector. The sectors that drew the most FDI in 2012 were manufacturing, with $4.3 billion, finance and insurance ($1.4 billion), construction ($1.3 billion), and electricity and gas ($888 million). The UK was the largest supplier of FDI over the year, at $1.99 billion, followed by Austria ($1.49 billion), Luxembourg ($1.25 billion), and the Netherlands ($1.18 billion).

Moving toward 2014, Turkey’s growth expectations are likely to be determined by changes in domestic demand, although that will largely depend on how harshly the CBT decides to curb spending. New government legislation promoting private pension funds could go a long way to establishing a higher savings rate, although the country will want to take its foot off the brakes if it is to meet GDP growth targets leading up to 2023. That could mean, despite a contraction in 2012, the CAD will remain a thorn in the side of the Turkish development story.

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