Turkish economy and exports on the fast lane
Turkish economy grew a staggering 8.9 per cent in 2010
Turkish economy grew 8.9 per cent in 2010 according to TurkStat, Turkey’s Statistics Institute. The above expectations high growth rate of 9.2 per cent in the fourth quarter of 2010 pushed the annual rate above expectations for 2010. Turkish government’s official forecast of 2010 growth rate was 6.8 per cent. This 8.9 per cent growth rate not only made Turkey the fastest growing economy in Europe in 2010, but it also put the country at the top third place in the world after China and Singapore.
The first signals of recovery in Turkish economy came in the fourth quarter of 2009 with a 6.0 per cent growth rate, after four consecutive quarters of contraction that caused the economy to shrink 4.8 per cent in 2009. Then in 2010, Turkey grew 11.9 per cent in the first quarter, 10.3 per cent in the second quarter, 5.2 per cent in the third quarter and 9.2 per cent in the fourth quarter that brought the growth rate of Turkish economy to a record high 8.9 per cent on annual basis. As a result, Turkey’s GDP rose to USD 736 billion and national income per capita reached USD 10,079. In 2010, the construction industry was the fastest growing sector with 17.1 per cent.
On the negative side, strong Turkish lira and the high economic growth rates in recent years resulted in a record high current account deficit that reached an alarming level of 6.5 per cent of the GDP. As a response, the Turkish Central Bank cut rates both in December and January to stop inflows of hot money from abroad and took additional measures to increase the bank reserve requirement ratios, taking effect as of 4th of February 2011, to cool the economy. “We will be reviewing the progress week by week and additional steps may be taken to cool the economy” said Turkish Economy Minister Ali Babacan in a news conference this week.
Although the domestic demand remained strong in the first quarter of 2011, Central Bank’s measures are expected to take effect starting from the second quarter of this year. Consequently, Turkey’s fast growth in 2010 is expected to slow down in 2011 with forecasts varying between 5 and 6 per cent.
Turkey’s current account deficit went as high as 11.9 per cent of its GDP during the 2001 crisis and gradually went down to 0.6 per cent in 2006. Last year’s deficit was 4.0 percent of the GDP, down from 5.5 per cent in 2009. Turkish government’s goal is to keep the current account deficit below the Maastricht criteria of 3.0 per cent in the next three years: 2.8 per cent in 2011, 2.4 per cent in 2012 and 1.6 per cent in 2013.
Turkish economy has become more stable in the last decade with its public debt to its GDP ratio declining to 42.3 per cent in 2010, down from 45.5 per cent in 2009. Turkey’s public debt to GDP ratio has shown a clear falling trend since the record high 73.7 percent in 2002, with forecasts of 40.6 per cent in 2011, 38.8 per cent in 2012 and 36.8 per cent in 2013. The Maastricht criteria for euro zone countries set the upper limit of its member countries’ public debt as 60 per cent of their respective GDPs.
A new record for Turkish exports
Turkish exports have continued to be one of the major engines of the Turkish economy in maintaining its strong growth. According to Turkish Exporters Assembly’s data, March marked a new record for the exports, reaching USD 11.7 billion with a 22.81 per cent jump from March of last year. This is not only the highest of the last 32 months, but also the highest March export figure in Turkish Republic’s history. In the first quarter, Turkish exports rose to USD 31.4 billion, a 20.74 per cent increase from the same period of last year, and the top three leading sectors were automotive, textile and steel.
In the first quarter of 2011, Turkey’s exports to many countries rose in double digits: Russia (53 per cent), India (52 per cent), Holland (40 per cent), Ukraine (40 per cent), Germany (28 per cent), Brazil (28 per cent), Italy (24 per cent), England (22 per cent), Spain (16 per cent) and Romania (13 per cent).
During the same period, Turkish exports to the Middle East rose by 33 per cent, despite sharp declines to some markets, including Libya (43 per cent), Egypt (24 per cent), Yemen (24 per cent) and Tunus (20 per cent), due to the political instability in these countries. In the first quarter, the top three growing Middle Eastern markets for Turkish exports were the United Arab Emirates (72 per cent), Iran (48 per cent) and Iraq (40 per cent). After this 40 per cent increase, Iraq has become the top fourth export market for Turkey. Turkish exports to Iraq have shown a steep upward trend in the last eight years, from no exports in 2002 to USD 6 billion in 2010.
According to a survey conducted by the Turkish Undersecretariat of Foreign Trade (DTM) among 500 leading Turkish export and import companies, optimism has remained high for the second quarter of 2011 as well. Respondent companies are expecting a 20 per cent increase in Turkey’s exports in the second quarter of this year. In order to keep this upward trend and compensate the losses in the Middle East, Turkish companies are targeting new markets, including India, China and sub-Saharan African countries. In addition, the abolition of visas between Russia and Turkey offers significant opportunities for Turkish exporters. According to a survey by the Turkish Exporters Assembly, Turkey’s leading 24 companies surveyed expressed Russia as their top target market.
Record low inflation
The newly released March data showed that despite the 0.42 per cent rise in Turkish Consumer Price Index (CPI), the year-on-year inflation dropped down to 3.99 per cent, the lowest rate in the last 42 years of the Republic of Turkey. On the other hand, Turkey’s Producer Price Index (PPI) rose 1.22 per cent in March to 10.08 per cent on year-on-year basis. This high margin between CPI and PPI raises the fears that the drop in the Consumer Price Index may be temporary. The results of a survey done by Turkish Central Bank in March showed that inflation may rise to 6.8 per cent in the next 12 months.
Turkish unemployment rate on the decline
Another good news for the Turkish economy came from the employment rate in 2011. Turkish unemployment rate declined from 14.5 per cent to 11.9 per cent in January on a year-on-year basis. Turkey has a very young population and the unemployment rate is higher among the younger workforce in the country. Consequently, the Turkish economy needs to achieve sustainable growth even to prevent Turkey’s current three million unemployment number from growing.
Turkish Airlines: The New Global Turkish Icon
Turkish Airlines (Türk Hava Yolları), Turkey’s national air carrier, was founded with only five airplanes in 1933. The last 10 years has marked a turning point in the company’s 78 year old history with impressive profitability, annual growth rates and service quality, transforming it into a successful global Turkish icon.
Today, Turkish Airlines has the youngest fleet of Europe with a total of 155 cargo and passenger planes, flying to 150 destinations around the world and qualifying it as the Europe’s third largest airline carrier. It carries about 25 million passengers per year. In 2011, Turkish Airlines is planning to start flying to 11 new international destinations as part of its successful growth policy. Some of these new destinations include, Valencia and Malaga in Spain, Toulouse in France, Washington DC and Los Angeles in the U.S. and Shiraz in Iran. Turkish Airlines also doubled the number of its flights between Istanbul and New York and is now flying twice a day between these two cities.
In addition to adding new routes, Turkish airlines is also opening new offices around the world, as part of its global expansion policy, in an attempt to directly reach its local markets instead of working with sales agencies. The carrier recently opened a new office in Empire State Building in New York and will soon be opening another new office in India.
The last two years have been incredibly successful for Turkey’s national flag carrier. In both 2009 and 2010, Turkish Airlines was awarded as Southern Europe’s best airline carrier. In addition, Turkish Airlines was given the third best airline of Europe award, as well as the prestigious four star status in all supervision categories. The company announced 389 million Euro profit in 2009, the third highest among national carriers globally in that year. According to its Chairman Hamdi Topcu, Turkish Airlines aims to reach a revenue of USD 8 billion and to own 165 planes by the end of 2011, a target originally set for 2015. Because of the addition of new destinations, the company decided to raise its capacity over its initial projections.
Turkish Airlines’ new global marketing campaign
During this period, Turkish Airlines launched a new worldwide advertising campaign,signing long term contracts with well-known international superstars, naming them as the company’s “Global Ambassadors” and using them in worldwide public relations activities and promotional films to promote the company, Turkey and Turkish culture.
Kobe Bryant Turkey Ad
In 2010, Caroline Wozniacki, the world’s number one ranked tennis player, signed a three year contract with Turkey’s national airline carrier, naming her the face of Turkish Airlines’ Business Class. This deal was followed by a two year contract with Los Angeles Lakers guard Kobe Bryant. The famous NBA superstar will serve as the face and image of Turkish Airlines and the Republic of Turkey in international commercials that will be aired in more than 80 countries. This deal with Bryant came at the same time with the announcement of the new direct flights between Los Angeles and Istanbul by Turkish Airlines.
Turkish Airlines signed partnership contracts with famous European soccer clubs Barcelona and Manchester United, as well as with ULEB, the consortium of Europe’s top professional basketball leagues from 18 countries. To become the official sponsor of Barcelona and Manchester United, the Turkish air carrier paid USD 16 million and bought the rights to use both teams’ names and players in its commercial and public relations campaigns, and to put its advertisements in both teams’ home fields. Turkish Airlines will also be flying both teams and their equipment. On the other hand, ULEB’s Euroleague was named as Turkish Airlines Euroleague, as part of this €15 million name sponsorship and strategic deal with ULEB. In addition to all this, Turkish Airlines is also currently the official sponsor of the Turkish National Soccer Team and the Greek basketball team Maroussi BC. The sponsorship agreement with Maroussi BC was signed in March and will be valid for one and a half years. It will enable Turkish Airlines to add its logo in Maroussi’s jerseys and to the sidelines of its home field.
Turkish Economy Rebounding Despite The Eurozone
Turkish economy is rebounding better than expectations, despite the growing problems in the Eurozone. After four consecutive quarters of contraction, the first signs of a strong recovery showed itself with 6% GDP growth in the last quarter of 2009. The first quarter of 2010 does look even more promising for the Turkish economy with some analyst growth forecasts of up to %15, making it the second fastest growing economy after that of China among the G-20 countries. The unemployment rate, the biggest challenge for the Turkish economy, has been on a sharp decline from 16.5% in January 2009 down to 14.4% in February 2010, resulting in creation of roughly 1,5 million new jobs.
Even though the percentage of bilateral trade volume with the Eurozone countries went down to 43% from over 50% a while ago, the Turkish economy is still heavily influenced by what happens in the Eurozone. The AKP government’s attempts to reach out to Russia, currently Turkey’s largest trading partner, the Middle East and Africa are paying back in terms of sharply higher trade and greater investment, and Turkey is achieving increasingly more economic integration with its newly found partners every day. Hence, Turkish economy’s vulnerability to the bumps in the Eurozone is decreasing and the country is becoming more of a global player, thanks to its strengthening economy. What is really helping this picture are the solid and liquid state of the Turkish banking system and the low debt ratio of the public sector: The Turkish public sector debt constitutes 49% of Turkey’s GDP, whereas this number reaches an average of 84% in the Eurozone countries. As a reflection of this strong recovery, the Turkish lira is attracting bullish recommendations against the dollar in 2010, with forecasts ranging between 6% to 12%. The Turkish currency has gained 2.4 % last month, the best performance among 26 emerging market currencies.
As a result, IMF raised its forecast for 2010 Turkish economic growth from 3.7% in October to 5.2% in April. Similarly, Goldman Sachs revised its growth forecast for 2010 from 5.5% to 7.0%.
Turkish Russian Relations: A Rapprochement with Global Importance
Turkish Russian relations: Erdogan and Medvedev
Turkish – Russian relations in the fast lane: Russian President Dmitry Medvedev’s recent visit to Turkey marked an important cornerstone in Russian – Turkish relations. With the signing of 17 agreements during his visit, the rapprochement between the two countries in recent years elevated the bi-lateral relations to the strategic partnership level that nobody could dream of a decade ago. Turkey’s rapprochement with Russia is much more significant than the country has had with her several other neighbors in the last few years and may reshape the political landscape in the region and beyond. Russia, once one of the two superpowers of the world, is the largest country in the world with a population of 142.9 million and vast resources, and Turkish Russian relations have enormous potential in many areas, including the trade and energy fields.
Russia and Turkey: Old enemies, new strategic partners
During Medvedev’s visit, as the new strategic partners Turkey and Russia formed a High Level Cooperation Council and the visa requirement between the two countries was lifted. The abolition of the visa requirement between Russia and Turkey means more trade, more tourism and a good start for a better integration of the two markets in the following years. This is especially remarkable, when one thinks of the numerous bloody wars between the two nations in the last few centuries. Not to mention the different camps that the two neighboring countries were in during the Cold War, Turkey being the frontier state for the West and feeling the Soviet threat right outside of its borders for several decades.
Turkish Russian cooperation in trade and energy
Turkish and Russian officials signed 17 agreements, the most important ones being in the energy and trade fields. Russia is currently Turkey’s largest trading partner with the yearly volume of $ 38 billion (2008) and this number is projected to reach $ 100 billion in the next five years. There are currently nearly 300 Turkish construction companies operating in Russia. In the energy sphere, Russia will build and operate four nuclear reactors in Turkey and a new oil pipeline will be built between Samsun and Ceyhan that will divide Turkey from north to south, connecting the Black Sea with the Mediterranean. There are also plans for building a joint refinery in Ceyhan in Turkey’s Mediterranean region and joint efforts to market the Russian energy. As a result of the Turkish Russian cooperation in the nuclear field, Russia will share its nuclear and space technology and train Turkish scientists, as the new nuclear reactor in Turkey will require a significant number of Turkish scientists.
With the abolition of visas for up to 30 days taking effect on April 17, 2011, the number of Russian tourists visiting Turkey is expected to increase 20 per cent and reach four million in 2011. Russians are also expected to increase their real estate investments in Turkish resort towns after the new regulation. Currently, Russians form the second largest group visiting Turkey after Germans and it would not be a big surprise for many to see more Russian tourists than Germans in Turkey in the next few years. Brits are the third on the list.
Elimination of visas also made Russia the top target market for Turkish companies. A recent survey conducted by the Turkish Exporters Assembly (TIM) showed the strong hopes for more trade between Russia and Turkey. All 24 leading companies that were surveyed by TIM put Russia on top of their future target markets list. The trade balance between the two countries is currently strongly in favor of Russia, as Turkey imports 62 per cent of its gas and 35 per cent of its oil from its resource rich neighbor. However, the new visa elimination will open the door for Turkish companies to pursue more opportunities in Russia and we may see a decrease in Turkey’s trade deficit with Russia in the future. Considering the hurdles the European Union visa regime puts on Turkey EU trade, this new rapprochement and the eventual economic integration that comes with it may help change the political landscape in the region.
Turkish foreign policy aims zero problems with neighbors and one of the main pillars of this policy is economic integration with neighbors. In the past, Turkey lifted visas and formed “High Level Cooperation Councils” with many of its neighbors, including Iraq, Syria, Jordan, the Gulf States and Greece. Bulgaria and Ukraine are also expected to be added to this list soon. High Level Cooperation Councils are official bodies formed by high level officials of two governments and meet more than once a year under the supervision of prime ministers to find ways to improve the level of cooperation between two countries. Some of these meetings also include joint cabinet meetings. Trade volumes have increased significantly with all the countries that visa restrictions are eliminated reciprocally with.
A rapprochement with global implications
This strategic partnership between Turkey and Russia has a significant importance, as both countries are members of the G-20 and follow active policies in the Middle East as well as in the the Eurasian basin. More noteworthy than the two regional powers pursuing similar policies in major regional issues, including the Iranian nuclear standoff and the Middle East conflict, is the fact that this cooperation in the energy field may change the balance of power in the energy game.
Although Turkey’s global geopolitical importance will increase because of its strengthened energy hub position, on the down side, Turkish economy will be more and more dependent on Russian energy. Turkey currently buys 62 per cent of its gas and 35 per cent of its oil from Russia, and with the new Russian nuclear reactor in the Turkish Mediterranean port town of Akkuyu, the country will be 100 per cent dependent on Russia in nuclear energy. In an attempt to decrease this dependency and to meet its rapidly increasing energy demand, Turkey is planning to reach a production capacity of 15,000 MW by building two more nuclear reactors by 2023. Accordingly, Turkish Energy Minister has been holding talks with Japanese companies for the second and third reactors that are planned to be built in northern Turkey.
Turkish Economy Shining Despite The Global Crisis
New York based Standard & Poor’s Ratings Services has been the fourth international credit agency raising Turkey’s credit rating in the last three months despite the global crisis. S&P said on Friday that it raised Turkey’s long term foreign currency and local currency sovereign credit ratings to BB and BB+ respectively. S&P cited Turkish economy’s strong track record in steadily reducing the debt burden over the past decade and said it believes Turkey’s banking system to be one of the strongest and least-leveraged in Eastern Europe. S&P also noted that the outlook on the ratings is positive, reflecting the possibility of another upgrade over the next 12-24 months.
During a period in which only 14 countries had a credit rating upgrade, S&P has been the fourth international credit organization raising the long term credit rating of the Turkish economy. Recently New York based Moody’s, Paris based Fitch and Tokyo based Japan Credit Rating Agency (JCR) also upgraded Turkey’s long term credit ratings. “40 countries including Russia, Mexico, Greece, Spain, Portugal and Ireland had their credit ratings recently downgraded by the international credit rating organizations and it is a great success for the Turkish economy to be among the few strong economies of the world despite the global crisis”, said Turkish Economy Minister Ali Babacan yesterday. “We are in a better shape than our ratings suggest and we can see another upgrade in the near future”, he added.
Turkish economy is the world’s 17th and Europe’s 6th largest economy and has been on a fast growth track in the last decade. Turkey’s “zero problems with neighbors” principle of its new foreign policy helped boost the trade with neighbors and diversified its trading partners. Turks are inspired to have one of the world’s top 10 largest economies by 2023.