Turkey Economy Profile 2012

Turkey's dynamic economy is a complex mix of modern industry and commerce along with a traditional agriculture sector that still accounts for about 30% of employment.

It has a strong and rapidly growing private sector, yet the state remains a major participant in basic industry, banking, transport, and communication. The largest industrial sector is textiles and clothing, which accounts for one-third of industrial employment; it faces stiff competition in international markets with the end of the global quota system.

However, other sectors, notably the automotive and electronics industries, are rising in importance within Turkey's export mix. Real GDP growth has exceeded 6% in many years, but this strong expansion has been interrupted by sharp declines in output in 1994, 1999, and 2001. Due to global contractions, annual growth is estimated to have fallen to 1.1% in 2008. Inflation fell to 7.7% in 2005 - a 30-year low - but climbed to over 10% in 2008. Despite the strong economic gains from 2002-07, which were largely due to renewed investor interest in emerging markets, IMF backing, and tighter fiscal policy, the economy is still burdened by a high current account deficit and high external debt. Further economic and judicial reforms and prospective EU membership are expected to boost foreign direct investment.

Turkey's impressive economic performance

The developments occurred in the world; especially in the final quarter of last century, have had deep and widespread impact. Wars, peaces, political restructuring, ethnic conflicts, invasions... followed one another in the last century. In this point, the necessity to locate the position of Turkey in the global economy appears very important.

Making Turkey economically strong both inside and outside the country has already become an issue of national security and foreign policy matter.

During World War I, the Turkish economy was underdeveloped: agriculture depended on outmoded techniques and poor-quality livestock, and the few factories producing basic products such as sugar and flour were under foreign control. Between 1923 and 1985, the economy grew at an average annual rate of 6%. In large part as a result of government policies, a backward economy developed into a complex economic system producing a wide range of agricultural, industrial, and service products for both domestic and export markets.

Turkey's impressive economic performance in the 1980s won high marks from Wall Street's credit-rating agencies. In 1992 and 1993, the government used these ratings to attract funds to Turkey.

Services increased from a small fraction of the economy, in the 1920s, to just under half of GDP by 1994. Several factors accounted for the growth of the services sector:

As defense expenditures rose; health, education, and welfare programs were implemented; and the government work force was increased to staff the numerous new public organizations, there was a major growth realized for the whole country.

As the economy developed and diversified, trade, tourism, transportation, and financial services also became more important.

In the age of financial globalization, economics and politics are interlinked in a peculiar way in the 2000's. Through commitment to the IMF program, mixed with a certain dose of pragmatic policies, Turkey's economic recovery occurred, together with an intense phase of democratic reforms.

It has come to play a pivotal role in the Middle East, in the Black Sea Basin, and in Central Asia. Today, Turkey's GDP is US$ 365 billion and positioned in the top 20.

The Turkish economy has shown remarkable performance with its steady growth over the last eight years. A sound macroeconomic strategy in combination with prudent fiscal policies and major structural reforms in effect since 2002, has integrated the Turkish economy into the globalized world, while transforming the country into one of the major recipients of FDI in its region.

The structural reforms, hastened by Turkey’s EU accession process, have paved the way for comprehensive changes in a number of areas. The main objectives of these efforts were to increase the role of the private sector in the Turkish economy, to enhance the efficiency and resiliency of the financial sector, and to place the social security system on a more solid foundation. As these reforms have strengthened the macroeconomic fundamentals of the country, inflation drastically decreased to 6.4 percent by the end of 2010, down from 30 percent in 2002, while the EU-defined general government nominal debt stock fell to 41.6 percent from 74 percent in a period of eight years between 2002 and 2010. Hence, Turkey has been meeting the “60 percent-EU Maastricht criteria” for the public debt stock since 2004.

As the GDP levels more than tripled to USD 736 billion in 2010, up from USD 231 billion in 2002, GDP per capita soared to USD 10,079, up from USD 3,500 in the given period.

The visible improvements in the Turkish economy have also boosted foreign trade, while exports reached USD 114 billion by the end of 2010, up from USD 36 billion in 2002. Similarly, tourism revenues, which were around USD 8.5 billion in 2002, exceeded USD 20 billion in 2010.

Significant improvements in such a short period of time have registered Turkey on the world economic scale as an exceptional emerging economy, the 16th largest economy in the world and the 6th largest economy when compared with the EU countries, according to GDP figures (at PPP) in 2010.

Prior to the recent global recession which hit all economies throughout the world, the Turkish economy sustained strong economic growth for 27 quarters consecutively, making it one of the fastest growing economies in Europe. However, the global financial crisis has considerably challenged the macroeconomic and financial stability of many economies by adversely affecting financing facilities and external demand, thus causing a significant slowdown in all global economic activities.

While the financial markets in Turkey proved resilient to the crisis, the decrease in external demand and slowing international capital flows have had a negative impact on the economy, thus causing an economic contraction in 2009. However, the perceived positive developments in the economy showed signs of a fast recovery beginning as early as the last quarter of 2009, with an impressive 5.9 percent economic growth rate, hence making Turkey one of the fastest recovering economies in the world. Its robust economic growth continued in 2010 as well, having reached 12 percent, 10.3 percent, 5.2 percent and 9.2 percent in the first, second and third quarters of 2010 respectively, thus achieving an overall growth rate of 8.9 percent throughout 2010. Turkey, with such a robust economic performance, stood out as the fastest growing economy in Europe and one of the fastest growing economies in the world.

2010 Real GDP Growth (%)

Annual Average Real GDP Growth (%) Forecast in OECD Countries 2011-2017

Source: OECD Economic Outlook No: 86

• Institutionalized economy fueled by USD 94 billion of FDI in the past eight years and ranked the 15th most attractive FDI destination for 2008-2010 (UNCTAD).
• 16th largest economy in the world and 6th largest economy compared with EU countries in 2010 (GDP at PPP, IMF-WEO).
• Robust economic growth over the last seven years with an average annual real GDP growth of 4 percent.
• GDP reached USD 736 billion in 2010, up from USD 231 billion in 2002.
• Sound economic policies with tight fiscal discipline.
• Strong financial structure resilient to the global financial crisis.
• Rapid recovery from the global financial crisis.