Daily Management Review

Erdogan and Turkish economy keep hoping for the best


05/04/2017


When Turkish President Recep Tayyip Erdogan meets with leaders of other states, economic issues begin to play an increasingly important role in the negotiations. However, Erdogan has become demonstratively complacent speaking of economics only recently. Contrary to forecasts of experts of Western financial organizations, Erdogan said in April, that the Turkish economy is growing steadily - by 2.9% in 2016.



incirlik.af.mil
incirlik.af.mil
However, Ankara changed its tone after the constitutional referendum in April. One of the country’s high officials already suggested returning to the issue of economic assistance to Turkey from Germany, another said the government is ready to pay more attention to the economy. But why help if things are that good?

Not so good, as it turned out. Even the very 2.9% of GDP growth, which was presented as a big victory, is actually quite a modest indicator for the developing Turkish economy. In the past decade, the norm was 6-7%, the a particularly successful for Turkey 2004 brought even 10%.

However, the modest 2.9% is largely a result of not natural growth of the economy, but of special measures taken by the country’s authorities and personally by President Erdogan over the past year and aimed at "warming up" the economic situation for a while. This intensive therapy included reduction or complete abolition of VAT on furniture and household appliances, easing of requirements for obtaining loans and increasing government spending. The measures quickly yielded results: according to calculations of the investment bank Goldman Sachs, private consumption grew by almost 10% in Turkey in the fourth quarter of 2016.

Above that, there are longer-term measures, which, however, are not only economic, but also political, such as implementation of large-scale engineering and infrastructure projects throughout Turkey. A good example here is the third bridge across the Bosporus Strait, the total cost of which, according to media reports, was about $ 3 billion. The Yavuz Sultan Selim Bridge became the world's longest suspension bridge with railway tracks, and has 4 lanes for driving cars in each direction. "We are writing a story", President Erdogan proudly announced at his solemn opening in the summer of 2016.

The project was financed with the money of private investors, which is "good for the authorities who do not need to look for this money in the budget," says Necip Bagoglu, an expert of the German government agency Germany Trade & Invest (GTAI), which provides information and consulting services to both German and foreign businessmen.

However, large-scale historical projects do not seem to save the Turkish economy as negative trends are mounting. Thus, inflation in Turkey in the spring of 2017 was more than 11% per annum. The Turkish lira, although strengthened against the dollar in recent months, lost about a third of its value over the previous year. Unemployment has reached 12.7%, and this is the highest mark for the last 7 years. The rating of Turkish bonds dropped to the level of "junk".

Tamer Yılmaz, an economist of Ziraat Bank in Istanbul, is concerned with a drop in foreign direct investment in the country. The current number is about $ 6 billion a year, while there were 20 billion back in 2007.

However, no one expects an immediate catastrophe. "We are not talking about the collapse", Tamer Yılmaz stresses, noting that Turkey has its strong place as a supplier to many European concerns. However, the attitude towards the country has changed. Turkey "is not in vogue" anymore, admits owner of the Istanbul consulting firm German Peter Heidinger. Large foreign companies refuse to expand their presence in the country, he says, and small and medium-sized enterprises do not dare enter the Turkish market.

At the same time, Turkey had every chance to repeat the success story of China, writes leading business journal of Germany Wirtschaftswoche in its latest review of the Turkish economy. "Closer than China, cheaper than Poland, more productive than Greece", - the publication lists advantages of Turkey for German firms. The year 2017 can be decisive for the country. "Hope dies last" - reminded the publication.

source: dw.de






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