Real gross domestic product (GDP) in Turkey grew stronger than expected in third-quarter 2015, yet analysts say its economy will likely remain vulnerable for the foreseeable future. While Turkey experienced high rates of growth prior to the 2008 global financial crisis, the country faced political and financial challenges in recent years.
“A return to those heady rates of growth will be hard to achieve without stronger rates of investment spending,” states a Dec. 10 Wells Fargo report. “Yet, acceleration in investment without a corresponding increase in the national savings rate will simply make the economy more imbalanced via larger current account deficits.”
Real GDP in Turkey grew 1.3% in Q3 compared to the previous quarter and increased 4% on a year-over-year basis. In the past two years, the Turkish lira depreciated by about 40% and boosted the country’s inflation rate. Wells Fargo also notes that Turkey’s national savings rate has trended lower over the past 20 years, and the International Monetary Fund (IMF) does not expect a rebound in the near future. “A lower rate of national savings means that Turkey likely will continue to incur current account deficits, leaving the country dependent on foreign capital inflows and vulnerable to the whims of foreign investors.”
Euler Hermes Chief Economist Ludovic Subran has a slightly more optimistic outlook on the Turkish economy and writes, “After a rough 2015, Turkey seems to be heading toward a modest recovery in 2016. But a few glitches are expected: corporate bankruptcies may increase by 6% next year; days sales outstanding (DSO) will remain stable, but still 15 days above world average.”
The lira will further depreciate next year, and volatility will likely remain high, Subran explained, acknowledging another worry includes the mix between weak growth prospects and a high dependency on external financing.
- Jennifer Lehman, NACM marketing and communication associate