Turkey has now put behind a year of political uncertainty and two elections. For investors, the fact that there won’t be another election for the next four years is a great advantage
Experts are curious about how the Turkish economy will perform at a time when the US Federal Reserve is expected to up the interest rates. Many financial agencies have recently been releasing reports featuring their analyses on this topic. However, one financial agency among several others stands out in this regard, thanks to its powerful data set which has helped it produce some of the most spot-on reports on Turkey’s economy in the past few years. The agency in question is Euler Hermes, one of the world’s leading insurers. Euler Hermes, which covers 40 million corporations around the world, recently organized the Turkey Trade & Export Finance Conference 2015 in Istanbul. During the conference, Euler Hermes executives and the agency’s chief economist talked about the most fundamental elements that might help improve Turkey’s economy in 2016. Here are some details from their report and statements made in the conference:
Moving up the added value chain
Chairman of the Board of Management at Euler Hermes Wilfried Verstraete stated that the slowdown in China is being a burden on the global economy and predicted that the global GDP growth will remain below 3 percent in 2015 – 2016. Verstraete said that saturated markets will remain reasonably stable, but that there are clear signs of disruption in emerging economies. He said Turkey, along with Brazil, Nigeria, Russia and South Africa will be among the worst affected countries from rate increases by the Fed. However, he also said that there are many opportunities ahead for Turkey to climb up in the added value chain for Turkey.
Short-term risks The Euler Hermes report notes that 2015 has been a challenging year for Turkish exporters, but the GDP will likely reach 3.2 percent thanks to improvements in domestic demand. In 2016, the Turkish GDP will see a moderate improvement and move to 3.6, but the economy is faced with certain problems in the short-term, according to the report.
The report lists the depreciation in the lira as the weightiest of these risks, noting that the lira is among the currencies that has lost the most value against the dollar in 2015. This will likely have a huge impact on Turkish exports (For example, commodity exports rose by 10 percent in liras in January – August 2014, but fell by 9 percent in USD volume). This has led to the current account deficit to remain large and net portfolio investment outflows have left a large financing gap; a worrisome development according to the report.
16,000 companies to go down
Euler Hermes Chief Economist Ludovic Subran shared bankruptcy data. He said he expected corporate bankruptcy to fall by 5 percent in 2015, but increases by 6 percent in 2016, corresponding to 16,000 companies. Subran predicted the financial impact of these bankruptcies at TL 3 billion on the economy.
Many opportunities in 2016
Apart from the short-term risks, the report lists a number of opportunities available to Turkey in 2016. The report notes that Turkish exports will start off 2016 with a moderate performance. Most export income will come from Europe and the MENA region, as well as Russia. Turkey’s textiles and the country’s chemicals, machinery and agricultural food industries might benefit from the opportunities available in the MENA region. According to the report, Turkey will continue to move up along the added value chain by growing the share of the automotive, chemistry, plastics&rubber, and machinery&equipment industries in its total exports volume.
