Research and analysis

Turkey economy: growth remains resilient April 2014

Published 16 April 2014

This research and analysis was withdrawn on

This document is no longer current.

Official figures released on 30 March show that the Turkish economy grew by 4.4% in Q4 2013, above market expectations, bringing year on year annual growth to 4% overall. This performance was driven by increases in household (up 4.6% year on year in 2013) and Government consumption (up 5.9%). Public sector investment rose 4.1% in the year, but private sector investment increased by less than 1%. In contrast to 2012, external demand had a negative effect in growth. Imports increased by 8.5%, while exports increased by 0.1%, reflecting the slow recovery in Turkey’s major export markets, including in the EU.

The current account deficit increased to 7.8% of GDP in 2013. Among important sectors , manufacturing and banking contributed to the acceleration of the economy in Q4 2013, while the construction sector grew more slowly in Q4.

Analysts’ growth estimates for 2014 range from 1.7% - 2.8%, given higher short term interest rates, the likely negative impact on credit growth and the weaker Turkish Lira (TL), which puts pressure on corporate balance sheets and investment. Corporate foreign exchange open positions grew to $US173.9bn, equivalent to 21.2% of GDP. Finance Minister Simsek said on 2 April that the corporate sectors’ FX exposure remains manageable and is not a concern.

The growth figures were published on the same day as the municipal election results and attracted limited domestic attention. Economy Minister Nihat Zeybekci commented that the economy has grown continuously for 17 consecutive quarters. He forecast that the weaker lira, together with the recovery in Euro zone, would increase external demand in 2014, in turn driving growth in Turkey through exports.

Markets have reacted positively to the results of the Turkey wide municipal elections on 30 March, in which the governing AKP won 45% of the vote. The Turkish lira has appreciated by 4.45% against the $US since the growth figures were announced, and reached TL 2.1/$US on 2 April, its strongest position since the beginning of 2014. The Istanbul Stock Exchange rose on 2 April to its highest level since corruption investigations began into close relatives of some members of the ruling AKP on 17 December 2013.

On 3 April, the March inflation figures were released, showing an increase in the Consumer Price Index of 1.13% in February and by 8.39% compared to March 2013. The increases were explained by analysts as the lag effect in the decrease in value of the TL. Market response was weak, as this increase has been expected, following an announcement from the CBRT that inflation would increase until June.

During a press conference on Friday 4 April, before flying to Azerbaijan, PM Erdogan called on the CBRT to lower interest rates.

0.1 Comment

At the beginning of 2013, many market analysts, including the IMF and OECD, forecast that Turkish GDP growth would be 5.5%. That was before the impact of the Gezi Park protests, the anti-corruption investigations and the political dispute between the AKP and the Gulenist movement. On the global level wider concerns developed in 2013 over emerging markets’ performance and the US Federal Reserve’s tapering policy. All of these factors had an impact on Turkish growth in 2013. Looking ahead in 2014 and 2015, some of these tensions have eased for now. Economic recovery in Europe and the cheaper TL should help Turkish exports grow more strongly and could lead to a fall in the persistent current account deficit. Short term capital inflows could increase, but investors will continue to watch the domestic situation.

0.2 Disclaimer

The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report.