2015 has been a tough year for the Turkish economy, both due to fluctuations in the global economy and elections at home
The global economy has entered the new year through a bleak curtain, due to problems and political tension around the globe and oil prices hitting a 13-year low. Intense fluctuations in the global markets, coupled with concern over the future of major economies, which act as the locomotive behind global economy, make it more difficult for both individuals and companies to take economic decisions. This is where İş Yatırım (Is Investment) report titled “The blow that doesn’t kill makes one stronger” steps in to serve as an important guide to help us understand the world economy and the Turkish economy and their course over the next few months.
The report stresses that the dollar is continuing its upward trend because of the differences in the monetary policies of the FED and other central banks, saying that disturbances in the global risk appetite will not be permanent. The report predicts that commodity prices will remain low, due to the slow down in growth in China (brought along by the balancing out of its components) and the oversupply in the energy market. According to the report, Turkey, an importer of oil and natural gas, is among the countries that will benefit most from the downward trend in commodity prices.
Dangers for emerging markets
The report notes that concerns about China pose the greatest danger to emerging markets, including Turkey, in 2016. It says that Chinese growth has been slowing down due to over borrowing, disinflationary pressure and a reduction in the country’s demographic advantage. The Chinese government has launched a program to make the shift to a domestic demand driven economy for additional growth, but the report notes that this model has not achieved much so far. If, the report warns, China plays the currency card in its attempts to foster growth, currency wars might break out in emerging markets; recalling the worrisome fluctuations in emerging market currencies that took place in the first week of the new year that came after China devalued the yuan. Emerging markets seem to be caught between the Fed and China, the report observes.
Geopolitical risk increases Turkey’s fragility
But what exactly awaits Turkey under the current circumstances? The report says that apart from the risks posed by rate hikes by the Fed and the slowdown in China, Turkey is open to geopolitical risks given its unique location. İş Yatırım warns that the recent political tension with Russia that emerged after Turkey shot down a Russian jet that violated its borders; the increasing number of Syrian refugees in the country, and tension with Iraq stemming from Turkey’s military presence there might create new vulnerabilities for the country. At the same time, the fall in oil prices probably won’t have the same degree of positive affect it has had on the economy last year. Thanks to lower oil prices, Turkey’s energy spending fell by 17 billion dollars in 2015. The report, based on estimates from the US Energy Information Administration (EIA), says any positive effect on the economy will be marginal compared to the positive impact in 2015.
Can lifting of Iran sanctions make up for lost Russian market?
But what impact will Russia’s sanctions against Turkey, following Turkey’s downing their fighter jet, have in 2016? The sanctions include banning Turkish food imports into the country; stopping tour package sales to Turkish facilities, and limiting the activities of Turkish companies based in Russia. Turkey’s tourism income has already fallen down by 4 billion dollars, mostly due to economic stagnation, and that amount corresponds to about 0.5 percent of the country’s GDP. According to İş Yatırım’s report, an additional 5 billion dollars – more or less another 0.5 percent of national income – will be incurred in 2016 by the crisis with Russia. If the crisis deepens, these losses might go up to as high as 9 billion dollars, which is about 1.2 percent of Turkey’s GDP. Although the affect of the sanctions will be limited relatively within the larger context, Antalya province, which has significant fruit exports to Russia and which is also a major tourism resort for Russian tourists, will pay dearly for the crisis.
According to the report, Turkey will be among the countries that will benefit most from the détente between the West and Iran. The lifting of economic and financial sanctions on Iran, combined with the fall in oil prices, will support Turkish economy, the report says. It notes that Turkish exports to the Middle East might double thanks to this development in 2016, with the automotive industry and white goods being the two sectors that will benefit most from the new situation. However, in the medium term, the ability to export to Iran will unlikely help cover the losses from the fallout with Russia, as Iran is not expected to start opening its doors to foreign trade in a swift fashion.
The report underlines that things will be tough for Turkey in terms of achieving foreign trade balance, due to weaker export markets and higher geopolitical risk, but also recalls that the revival in the European economy has worked to support Turkish exports in 2015, with exports to Europe increasing by 10 percent last year. This same trend will continue in 2016, according to İş Yatırım’s report: “But our energy exporting neighbors’ getting poorer and negative geopolitical developments (Russia, Iraq an Syria) will continue to pull Turkey down.” The report also warns that a recent 30 percent increase to the minimum wage rate in Turkey will revive domestic demand, which will in turn decrease the competitiveness of low value-added sectors; thus making it even more difficult for the country to balance foreign trade.
According to the report, Turkey will be among the countries that will benefit most from the détente between the West and Iran. The lifting of economic and financial sanctions on Iran, combined with the fall in oil prices, will support Turkish economy, the report says. It notes that Turkish exports to the Middle East might double thanks to this development in 2016, with the automotive industry and white goods being the two sectors that will benefit most from the new situation. However, in the medium term, the ability to export to Iran will unlikely help cover the losses from the fallout with Russia, as Iran is not expected to start opening its doors to foreign trade in a swift fashion.
The report underlines that things will be tough for Turkey in terms of achieving foreign trade balance, due to weaker export markets and higher geopolitical risk, but also recalls that the revival in the European economy has worked to support Turkish exports in 2015, with exports to Europe increasing by 10 percent last year. This same trend will continue in 2016, according to İş Yatırım’s report: “But our energy exporting neighbors’ getting poorer and negative geopolitical developments (Russia, Iraq an Syria) will continue to pull Turkey down.” The report also warns that a recent 30 percent increase to the minimum wage rate in Turkey will revive domestic demand, which will in turn decrease the competitiveness of low value-added sectors; thus making it even more difficult for the country to balance foreign trade.
