Turkey - Economy

Economy

Turkey has the world's 15th largest GDP-PPP and 17th largest nominal GDP. The country is among the founding members of the OECD and the G-20 major economies. During the first six decades of the republic, between 1923 and 1983, Turkey has mostly adhered to a quasi-statist approach with strict government planning of the budget and government-imposed limitations over private sector participation, foreign trade, flow of foreign currency, and foreign direct investment. However, in 1983 Prime Minister Turgut Özal initiated a series of reforms designed to shift the economy from a statist, insulated system to a more private-sector, market-based model.

The reforms, combined with unprecedented amounts of foreign loans, spurred rapid economic growth; but this growth was punctuated by sharp recessions and financial crises in 1994, 1999 (following the earthquake of that year), and 2001; resulting in an average of 4% GDP growth per annum between 1981 and 2003. Lack of additional fiscal reforms, combined with large and growing public sector deficits and widespread corruption, resulted in high inflation, a weak banking sector and increased macroeconomic volatility. Since the economic crisis of 2001 and the reforms initiated by the finance minister of the time, Kemal Derviş, inflation has fallen to single-digit numbers, investor confidence and foreign investment have soared, and unemployment has fallen.

Turkey has gradually opened up its markets through economic reforms by reducing government controls on foreign trade and investment and the privatisation of publicly owned industries, and the liberalisation of many sectors to private and foreign participation has continued amid political debate. The public debt to GDP ratio, while well below its levels during the recession of 2001, reached 46% in 2010 Q3. The GDP growth rate from 2002 to 2007 averaged 7%, which made Turkey one of the fastest growing economies in the world during that period. However, growth slowed to 1% in 2008, and in 2009 the Turkish economy was affected by the global financial crisis, with a recession of 5%. The economy was estimated to have returned to 8% growth in 2010.

In the early years of this century the chronically high inflation was brought under control and this led to the launch of a new currency, the Turkish new lira, on 1 January 2005, to cement the acquisition of the economic reforms and erase the vestiges of an unstable economy. On 1 January 2009, the new Turkish lira was renamed once again as the Turkish lira, with the introduction of new banknotes and coins. As a result of continuing economic reforms, inflation dropped to 8% in 2005, and the unemployment rate to 10%.

Tourism in Turkey has experienced rapid growth in the last twenty years, and constitutes an important part of the economy. In 2008 there were 31 million visitors to the country, who contributed $22 billion to Turkey's revenues. Other key sectors of the Turkish economy are banking, construction, home appliances, electronics, textiles, oil refining, petrochemical products, food, mining, iron and steel, machine industry and automotive. Turkey has a large and growing automotive industry, which produced 1,147,110 motor vehicles in 2008, ranking as the 6th largest producer in Europe (behind the United Kingdom and above Italy) and the 15th largest producer in the world. Turkey is also one of the leading shipbuilding nations; in 2007 the country ranked 4th in the world (behind China, South Korea and Japan) in terms of the number of ordered ships, and also 4th in the world (behind Italy, USA and Canada) in terms of the number of ordered mega yachts.

Turkey's economy is becoming more dependent on industry in major cities, mostly concentrated in the western provinces of the country, and less on agriculture. However, traditional agriculture is still a major pillar of the Turkish economy. In 2010, the agricultural sector accounted for 9% of GDP, while the industrial sector accounted for 26% and the services sector 65%. However, agriculture still accounted for 24.7% of employment. In 2004, it was estimated that 46% of total disposable income was received by the top of 20% income earners, while the lowest 20% received 6%. According to Eurostat data, Turkish PPS GDP per capita stood at 49% of the EU average in 2010.

Turkey has taken advantage of the European Union – Turkey Customs Union, signed in 1995, to increase its industrial production destined for exports, while at the same time benefiting from EU-origin foreign investment into the country. Turkey now has also opportunity of a free trade agreement with the European Union (EU) – without full membership – that allows it to manufacture for tarif-free sale throughout the EU market.

By 2009 exports were $110 bn and in 2010 it was $117 bn (main export partners in 2009: Germany 10%, France 6%, UK 6%, Italy 6%, Iraq 5%). However larger imports, which amounted to $166 billion in 2010, threatened the balance of trade (main import partners in 2009: Russia 14%, Germany 10%, China 9%, US 6%, Italy 5%, France 5%).

After years of low levels of foreign direct investment (FDI), Turkey succeeded in attracting $22 billion in FDI in 2007 and is expected to attract a higher figure in following years. A series of large privatisations, the stability fostered by the start of Turkey's EU accession negotiations, strong and stable growth, and structural changes in the banking, retail, and telecommunications sectors have all contributed to a rise in foreign investment. In 2012, Fitch Group upgraded Turkey's credit rating to investment grade after an 18 year gap.