Investment - Economic Outlook
Fiscal discipline and a tight fiscal policy continue to be the main pillars of Turkey's economic program, and have contributed a great deal to disinflation as well as to a strong growth performance. In addition to its sound macroeconomic policies, Turkey has implemented a comprehensive and far-reaching structural reform agenda. Compared with the experiences of other countries, Turkey's success has been remarkable, primarily because of the speed with which it has carried out structural and institutional changes. Indeed, Turkey has made great progress in restructuring its financial sector as well as in improving public sector governance and its business environment.
1. MACROECONOMIC INDICATORS
A QUICK OVERVIEW
The Turkish economy has grown steadily over the last 20 quarters. GDP and GDP per capita figures highlight the strength and stability of the national economy as well as its integration into macroeconomic global trends.
Between 2002 and 2007:
• GDP increased by 187%, reaching $663bn.
• Annual average real GDP grew by appx. 7%.
• Exports increased by 197% and reached USD 107 billion in 2007.
• Foreign trade increased by 216%.
• Exports to neighboring countries rose 478%.
• Imports from neighboring countries grew by 340%.
Benchmarking the performance of the Turkish economy
Stability and high performance in the economy
ECONOMIC GROWTH IN DETAIL
1.a. Sustainable growth path
In recent years, the Turkish economy has displayed a high growth performance due to decisively implemented structural reforms and successful macroeconomic policies; it has become one of the fastest growing economies in the world. The annual average real GDP growth rate, which was 0.8% during the period 1998 to 2002, reached 7% in the period 2002 to 2007.
In the last five years, the driving force of economic growth has been the total factor productivity increase on the supply side and private sector investment on the demand side. In 2007, in line with expectations, GDP increased by 5% and reached USD 663 billion, while per capita income rose to USD 9,630. The observed economic growth is driven mainly by private sector investments supported by high export performances.
As a result of a sustained rate of growth, structural reforms, and the process of macroeconomic stabilization, the EU emphasized the improvements in the operation of market forces in Turkey. The accelerated reform process along with EU accession negotiations, robust private sector investments and favorable demographics promise faster convergence with the EU during the negotiation process. The expected rise in participation in the labor force and vast productivity gains through increasing investments are predicted to be the driving engines of the convergence; these factors also guarantee sustained high growth.
| Year | GDP (current prices in billion USD) |
GDP per capita (current prices USD) |
Real growth (%) |
| 2008* | 748.301 | 10,737.68 | 4 |
| 2007 | 663.419 | 9,629.14 | 5 |
| 2006 | 528.686 | 7,759.61 | 7 |
| 2005 | 482.782 | 7,109.89 | 8 |
| 2004 | 392.886 | 5,872.37 | 9 |
| 2003 | 304.141 | 4,616.16 | 5 |
| 2002 | 231.03 | 3,562.29 | 6 |
| 2001 | 192.672 | 3,019.24 | -6 |
| 2000 | 265.177 | 4,225.11 | 7 |
| 1999 | 245.482 | 4,097.50 | -3 |
| 1998 | 265.605 | 4,500.78 | 3 |
| 1997 | 250.112 | 4,304.89 | 8 |
| Source: IMF World Economic Outlook Database 2008 *IMF estimate |
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1.b. Industrial production index
The 12-month average for 2007 shows a 5.4% increase for the total industry index (from 137.6 to 145.0), a 9.6% increase for the mining industry index (from 98.1 to 107.5), a 4.8% increase for the manufacturing industry index (from 136.8 to 143.3) and an 8.7% increase for electricity, gas, and water (from 170.5 to 185.3) compared to the previous year's 12-month average.
Growth rate comparison of industrial production over the same month of the previous year (%)
| ECONOMIC ACTIVITIES |
June | Average of six-month | ||||||
| Index | Change | Index | Change | Index | Change | Index | Change | |
| 2007 | 2006 | 2007 | 2006 | |||||
| Total industry | 149.4 | 1.8 | 146.7 | 10.0 | 140.5 | 5.3 | 133.4 | 6.0 |
| Mining | 108.2 | 2.9 | 105.1 | 10.9 | 99.5 | 10.3 | 90.2 | 6.9 |
| Manufacturing | 148.6 | 1.1 | 147.0 | 9.6 | 139.2 | 4.7 | 133.0 | 5.6 |
| Electricity, gas & water | 182.1 | 8.2 | 168.3 | 13.8 | 178.5 | 9.2 | 163.4 | 8.9 |
Weight of sectors
| Main sectors | 100 | Mining | ||
| C Mining | 4.89 | 10 Coal mining | 41.7 | |
| D Manufacturing | 86.92 | 11 Crude petroleum | 18.29 | |
| E Electricity. gas & water | 8.19 | 12 Mining of iron ores | 13.74 | |
| 13 Non metallic Mineral | 26.27 | |||
| Manufacturing | ||||
| 15 Food. beverages | 10.64 | 26 Non metallic | 6.85 | |
| 16 Tobacco | 1.35 | 27 Basic metal | 8.9 | |
| 17 Textile | 10.88 | 28 Metal production | 3.39 | |
| 18 Clothing | 5.42 | 29 Machines | 5.76 | |
| 19 Leather | 1 | 30 Office machines | 0.05 | |
| 20 Wood | 0.59 | 31 Electric machines | 3.22 | |
| 21 Paper | 1.59 | 32 Radio. TV | 1.49 | |
| 22 Publishing | 1.73 | 33 Medical equipment | 0.26 | |
| 24 Petroleum products | 14.48 | 34 Motor vehicle | 6.27 | |
| 24 Chemicals | 10.34 | 35 Other transports | 1.07 | |
| 25 Plastics | 3.41 | 36 Furniture | 1.3 | |
| Source: Turkish Statistical Institute (TURKSTAT) | ||||
Industrial production index
| 1997=100 | ||||
| Economic Activities | 12 Month Average | |||
| Index | Change | Index | Change | |
| 2007 | 2006 | |||
| Industry total | 145.0 | 5.4 | 137.6 | 5.8 |
| Mining | 107.5 | 9.6 | 98.1 | 4.3 |
| Manufacturing | 143.3 | 4.8 | 136.8 | 5.5 |
| Electricity, gas, water | 185.3 | 8.7 | 170.5 | 9.1 |
| Source: Turkish Statistical Institute (TURKSTAT) | ||||
1.c. Balance of payments
In 2007, the current account deficit increased nearly 14% over the 2006 level, rising to USD 38 billion. In the same year, capital and finance accounts produced a USD 37 billion surplus.
| Billion USD | ||||
| 2004 | 2005 | 2006 | 2007 | |
| CURRENT ACCOUNT BALANCE | -15.6 | -22.6 | -32.9 | -37.6 |
| Foreign trade balance | -23.9 | -33.5 | -41.3 | -46.7 |
| Exports f.o.b.(including gold) | 67.0 | 76.9 | 91.9 | 115.3 |
| Imports f.o.b. (including gold) | -90.9 | -110.1 | -132.8 | -162.0 |
| Rate of imports covered by exports (%) | 73.7 | 69.9 | 69.2 | 71.2 |
| Balance of services | 12.8 | 15.3 | 13.4 | 13.9 |
| Balance of investment income | -5.6 | -5.8 | -6.6 | -6.9 |
| Current transfers | 1.1 | 1.5 | 1.7 | 2.2 |
| CAPITAL & FINANCIAL ACCOUNT | 13.4 | 20.4 | 35.1 | 36.5 |
| Net foreign direct investment | 2.0 | 8.9 | 19.0 | 19.9 |
| • Abroad | -0.8 | -1.1 | -0.9 | -2.1 |
| • In Turkey | 2.8 | 10 | 20 | 22 |
| Portfolio investment | 8.0 | 13.4 | 7.4 | 0.7 |
| Other Investments | 4.2 | 15.9 | 14.8 | 23.9 |
| Reserve Assets | -0.8 | -17.8 | -6.1 | -8.0 |
| NET ERRORS & OMISSIONS | 2.2 | 2.2 | -2.3 | 1.1 |
| Source: Central Bank of the Republic of Turkey (CBRT) | ||||
Wise and prudent economic policies accompanied by structural reforms have brought a new perspective to the Turkish economy. The outstanding growth performance in conjunction with strong disinflation brought the economic reforms to a new frontier. Turkey has been able to attract a significant level of foreign direct investment (FDI) in recent years because the stability of the economy was able to enhance the investment environment, and the projections for the future are quite positive.
In 2007, FDI inflows to the country hit a record high. They increased to USD 22 billion, having averaged around USD 1 billion in the past.
Looking at external accounts
The 2007 current account deficit was realized at 5.7% of GDP with a 0.4 point decrease compared to 2006. The current account deficit was easily financed in 2007 mainly due to high export performance, privatization receipts, and rising FDI. The FDI inflows reached USD 22 billion in 2007, the highest ever in Turkish economic history. Receipts from FDI are expected to continue in future years with the acceleration of the EU accession process and efforts to improve the investment environment.
Exports and tourism revenues
Turkey ranked ninth among top tourism earners in the world in 2006, and 23.3 million tourists visited Turkey in 2007.
1.d. Prudent fiscal and tight monetary policy
Fiscal discipline continues to be the cornerstone of the macroeconomic performance of the Turkish economy. Turkey reduced its debt stock and positively affected the expectations of the market toward a stable economic growth environment and low inflation rate. Turkey has met the EU Convergence Criteria (a.k.a. Maastricht Criteria) since 2004.
The implementation of tight fiscal and strict monetary policies has helped to decrease inflation significantly, bringing it down to single figures.
Declining inflation
| Year | Producer PI annual avg. change (%) |
Consumer PI annual Avg. change |
GDP Deflator (%) |
| 2007 | 6.31 | 8.39 | 8.1 |
| 2006 | 9.34 | 9.65 | 9.3 |
| 2005 | 5.89 | 7.72 | 7.1 |
| 2004 | 11.09 | 9.32 | 12.4 |
| 2003 | 25.56 | 18.36 | 23.3 |
| 2002 | 50.11 | 29.75 | 37.4 |
| 2001 | 61.63 | 68.53 | 52.9 |
| 2000 | 51.43 | 39.03 | 49.2 |
| 1999 | 53.06 | 68.79 | 54.2 |
| Source: Turkish Statistical Institution (TURKSTAT) | |||
One of the most striking aspects of the recent performance of the Turkish economy has been the substantial decline in inflation in a strong growth environment with soaring energy prices. The annual inflation rate declined from a level near 70% at the beginning of 2002 to 7.5% in October 2005, the lowest level in 35 years. To further support disinflation, the Central Bank of Turkey shifted to formal inflation targeting in 2006.
In Conclusion
Thanks to prudent fiscal and monetary policies as well as comprehensive structural reforms, economic fundamentals and balance sheets have strengthened considerably in recent years, making the economy much more resilient to adverse shocks. In order to move forward, Turkey still faces important challenges. In this respect, Turkey is determined to continue and to accelerate the structural reforms on all fronts and transform itself into a well developed country in every respect.
