UAE/TURKISH BUSINESS RELATIONS
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Dr. Nilgün Birgören Premium Member Group moderatorThe company name is only visible to registered members.Turkish economy moving fast
Turkey’s economy expanded at an impressive 8.9 percent in the year 2010, data released Thursday showed. The rapid expansion, fueled by soaring domestic private demand, carried gross domestic product per capita to above $10,079. The ‘increasingly unbalanced’ nature of growth adds to mounting evidence that the economy is ‘overheating,’ according to a top economist
The Turkish economy posted the highest growth for any European country in the fourth quarter of 2010, as the statistics institute announced Thursday that gross domestic product expanded 9.2 percent on an annual basis. With this stellar growth, the economy has grown by 8.9 percent in the year 2010.
Nominal GDP reached 1.105 trillion Turkish Liras ($733 billion), posting a 16 percent annual increase from 2009’s $613 billion. GDP is now more than 5 percent above its pre-crisis peak.
GDP per capita was at 15,138 liras ($10,079), according to Economy Minister Ali Babacan, surpassing the $10,000 mark.
As government officials rejoiced, however, a top analyst pointed to a real danger of “overheating” in the economy, noting that Turkey is looking “increasingly precarious.” Many other analysts, meanwhile, praised Turkey’s rapid climb out of the global crisis.
Among the Group of 20 of major economies, only China has reported faster fourth-quarter growth. In 2010, China’s economy expanded by 10.3 percent, while Argentina and Turkey grew by 10.3 percent and 9.2 percent, respectively.
After the data was released, the lira gained against the U.S. dollar, and was trading at 1.5445 per dollar at 4:40 p.m. The lira has advanced 4.7 percent against the greenback since the start of the month. Against the euro, which is also gaining ground, the lira appreciated by 1.6 percent and was trading at just above 2.19 per euro.
The Turkish economy expanded at an impressive 3.6 percent from the third quarter, according to seasonally adjusted figures. The contribution to growth from private consumption and investment spending was over 10 percentage points for 2010, while contribution from public consumption and investment was only 0.8 percentage point.
“Domestic consumption and investment were very strong in the quarter,” Bloomberg quoted Şengül Dağdeviren, chief economist for ING Bank in Istanbul, as saying. “The danger is that the economy’s dynamism comes from domestic demand and that brings strong imports and the question of how they’re financed.”
As the foreign trade deficit surged, net exports, which were in negative territory, slashed 4.4 percentage points from GDP growth.
The current account deficit, the soft belly of the Turkish economy, was equivalent to 6.7 percent of GDP in 2010 as a whole and just over 8.5 percent of GDP in the fourth quarter.
This deficit occurs when a country's total imports of goods, services and transfers is greater than its total export of goods, services and transfers. This situation makes the country a net debtor to the rest of the world, and the gap has to be financed from abroad.
Forming a direct link with loan growth and a rising current account deficit, the Turkish Central Bank is using bank reserve requirements to rein in credit, while keeping its main interest rate at a record low of 6.25 percent – a policy that actually stimulates economic growth.
“The sheer pace of growth in the fourth quarter, and its increasingly unbalanced nature, adds to mounting evidence that the economy is overheating,” said Neil Shearing of London-based Capital Economics. “Turkey’s position as Emerging Europe’s star performer is looking increasingly precarious.”
According to London-based Shearing, it is clear that the Turkish economy is operating “at well above potential” and “the current pace of growth is unsustainable.”
However, the sheer pace of growth was not the only concern for Shearing, who noted its “increasingly unbalanced” nature. “While exports increased by 4.3 percent year-on-year in the fourth quarter, imports rose by a massive 25.4 percent,” he said in a note to investors. “Growth in domestic demand is outstripping that of potential supply. As such, the economy is sucking in increasing amounts of imports, which in turn has caused the current account deficit to widen.”
Thus, Turkey is becoming increasingly dependent on foreign capital to sustain domestic demand. “Given that the bulk of capital inflows are relatively short-term in nature … this leaves the economy – and the lira – highly vulnerable to fluctuations in investor sentiment,” Shearing said.
Foreign direct investment, which is more stable compared to short-term inflows, accounted for just 10 percent of total inflows in 2010.
The figures are looking more worrying when a “perfect storm” consisting of eurozone debt troubles in the West and political turmoil in the Middle East and North Africa are taken into consideration.
Shearing warned that without tighter fiscal policy, which is “unlikely ahead of June’s elections,” a fresh growth shock for the global economy could trigger a “hard landing” for Turkey.
Economy Minister Ali Babacan, however, said the high growth is having a positive effect on the employment situation. “According to this latest data, Turkey has decreased unemployment by the fastest rate compared to the G-20, the European Union and the OECD economies,” Anatolia news agency quoted Babacan as saying. As of December, Turkish unemployment rate stood at 11.4 percent, down from 13.5 percent in December 2009.
Foreign Trade Minister Zafer Çağlayan, meanwhile, recalled that the European Union economy has grown only by 1.7 percent in 2010. “Even Poland’s economy grew 3.8 percent in 2010. This clarifies Turkey’s success,” the minister said.
“The Turkish economy has grabbed a new growth story,” said Çağlayan. “Data for the first three months of the year show that this year, we will surpass the $127 billion export target set by the [government’s] Medium-Term Program.”
Source: AA
- 31 Mar 2011, 5:29 pm
