A Closer Look at Turkey's Economy
The value of Turkey’s currency, the lira, has collapsed. Its economy has stagnated so badly that there is even talk of a bailout, perhaps led by the International Monetary Fund (IMF). Banks in the nation loaned too much money, and some of those loans have failed. The country is in a trade war with the Trump administration, particularly over steel and aluminum prices. What does the Turkish economy look like? Here are comments from several expert sources.
Turkey’s nominal gross domestic product (GDP) is just shy of $900 billion, which makes it 17th in the world, just behind Indonesia and Mexico but larger than The Netherlands and Saudi Arabia.
Its GDP per capita is 76th out of 229 nations in the world, according to the CIA Factbook. The figure is $26,500. GDP is mostly made up of consumer activity, at 60%, but government activity is 15% of the total. Services are 61% of the economy. The country’s unemployment rate is 10%, according to the Factbook. Just below 21% live under the poverty line. Public debt is 30%, which ranks it 167th among all nations.
The Factbook pointed out problems that could lead to severe economic trouble:
The growth of Turkish GDP since 2016 has revealed the persistent underlying imbalances in the Turkish economy. In particular, Turkey’s large current account deficit means it must rely on external investment inflows to finance growth, leaving the economy vulnerable to destabilizing shifts in investor confidence. Other troublesome trends include rising unemployment and inflation, which increased in 2017, given the Turkish lira’s continuing depreciation against the dollar. Although government debt remains low at about 30% of GDP, bank and corporate borrowing has almost tripled as a percent of GDP during the past decade, outpacing its emerging-market peers and prompting investor concerns about its long-term sustainability.
A look at its economy from the IMF in April was somewhat optimistic, which shows how even experts can miss the mark:
Growth rebounded sharply in 2017, helped by strong policy stimulus in the wake of the 2016 post-coup attempt slump and by favorable external conditions. Although expansionary policies were initially warranted, they are no longer appropriate as the economy is showing clear signs of overheating. Monetary policy appears too loose and its credibility is low; and on- and off-budget fiscal policies (including credit guarantee schemes and PPP activities) are expansionary and risk undermining Turkey’s hard-earned fiscal credibility. As a result, the economy faces internal and external imbalances: a positive output gap, inflation well above target, and a current account deficit of more than 5 percent of GDP. Meanwhile, political uncertainty and regional instability remain elevated, and the integration of the many refugees poses challenges.
The World Bank’s assessment was no more accurate:
Although Turkey’s growth prospects are reasonably robust, with an expected 4.7% growth rate for 2018 and the medium term, it faces challenges to moving into high-income status. Turkey’s macroeconomic achievements are also being tested by an uncertain outlook. Domestic challenges and a deteriorating geopolitical environment have negatively impacted exports, investment, and growth.
The influx of more than 3 million Syrian refugees in 2016-17 created new social, economic, and political demands, particularly in urban centers where most refugees have settled. The Government will need to take strong measures to revitalize private investment, boost growth, and resume Turkey’s convergence with Europe. Most notably, new momentum is needed to improve the quality of education and boost productivity through greater innovation.
The Turkish economic disaster caught many of the world’s global financial experts by surprise, so it is no wonder that the catastrophe has roiled the markets so badly and led to concern that a bailout of its economy could be one of the largest in recent history.