Turkish economy turns forecasts upside down
With the July 15 coup attempt, perpetrated by Gülenist Terror Group (FETÖ), Turkey was subjected to a major act of terror that many would have deemed impossible in the 21st century. At the time, Turkey was one of the only five countries that achieved successive positive growth for 27 quarters, thanks to its macro prudential measures, whereas the global economic system has been struggling to recover from the 2008 financial crisis.
Having successfully grown by 8.5 percent in 2013, 5.2 percent in 2014, and 6.1 percent in 2015, Turkey sustained its position among the nations with high growth performance in the first two-quarters of 2016 (4.8 percent and 4.9 percent).
The failed coup attempt, however, disrupted that series of positive growth and the country’s economy contracted by 1.8 percent in the third quarter.
Following the coup, the government moved into the rescue with a series of new economic measures, similar to those taken to offset the effects of the 2008 global financial crisis. Eventually, the Turkish economy growth returned to positive figures in the fourth quarter of 2016 with 4.2 percent.
However, by the end of 2016, the International Monetary Fund (IMF), World Bank (WB) and Organization for Economic Cooperation and Development (OECD) as well as international credit rating agencies and financial institutions all forecasted that the Turkey’s growth would remain under 3 percent in 2017 while some of them even predicted it would be below 2 percent.
The Turkish economic administration entered the New Year with the restructuring of a Credit Guarantee Fund that especially supports small and medium sized enterprises (SMEs), similar to the one in South Korea.
The country bounced back to achieve 5.2 percent and 5.1 percent growth in the first and second quarters of 2017, with notable improvements in bank credits, construction investments and in export volume.
Leading indicators show that the growth in gross domestic product (GDP) may even reach 7 percent in the third quarter, putting Turkey on par with China and India.
INSTITUTIONS REVISE FORECASTS
As a matter of fact, Turkey was ranked third for highest growth rates among the G-20 countries in the second quarter of the year, following China’s 6.8 and India’s 5.7 percent.
In a global economic setting where the eurozone grew on average by 2.3 percent, the U.S. by 2.2 percent, Germany by 2.1 percent, Britain by 1.8 percent and France by 1.7 percent, Turkey ranked fourth in growth after Slovenia, Estonia, and Romania.
Some 2.3 points of the 5.1 percent growth, which pushed Turkey to fifth place in global growth performances, stemmed from net exports, 1 percent came from the dynamism provided by the Credit Guarantee Fund, and the rest originated from construction dominated investments and consumption expenditures.
Global investors were aware of Turkey’s success and its growth story, despite all the unfortunate developments.
In the meantime, the interest in Turkish shares and treasury bills has enabled the Turkish lira to strengthen and we can hope to complete the year with a serious international currency inflow if the third quarter growth data, which will be announced in December, reaches the range of 7-8 percent. We have to support our growth success in 2018 by minimizing inflation to around 6 percent and with steps towards price stability. This is why the economic administration will accelerate its steps towards controlling the inflation this fall.
Economists have already revised their overall growth forecasts for Turkey in 2017, with estimations going as high as 5.7 percent and as low as 4 percent. A staggering 14.5 percent increase in industrial production in July, compared to the same month last year, already points to a 7 to 8 percent growth in the third quarter.
International investment banks including JP Morgan, Morgan Stanley, and Nomura have all revised their growth expectations for Turkey.
Goldman Sachs, on the other hand, stated that growth could reach as much as 7 percent in the third quarter. However, they predicted that it will slow down in the last quarter and have not revised their yearend growth estimations.
Meanwhile, JP Morgan has raised its estimate for GDP growth from 4.6 percent to 5.3 percent following the strong growth and strengthening exports. It maintained its growth expectations for 2018 at 3.1 percent.
Morgan Stanley increased its estimates from 3.3 percent to 4.3 percent after the strong growth during the first six months due to a robust credit growth.
Additionally, Nomura, according to a view that the GDP growth will accelerate even more based on the growth in the third quarter, raised its forecast from 4.2 percent to 5.5 percent.
Nomura, who kept its estimations for 2018 growth as 3 percent, highlighted that they were aware of the upward risks included in this estimate.
It seems that Turkey is poised to stay on course for further growth during the 2017-2019 period.