The Turkish economy has experienced significant growth in recent years, with GDP rising at an average of 5% per year over the past decade. This impressive performance is due to several factors, including strong investment, exports, and government spending.
But this success comes with some caveats. Although the country’s overall economic situation is sound, there are still major weaknesses that could threaten future growth. These include high debt, persistent inflation, and limited access to foreign currency for both businesses and individuals.
Furthermore, the dominance of the national banking system means that it is vulnerable to political influence, which can create problems in terms of credit availability.
This article will discuss what makes the Turkish economy unique, as well as potential challenges ahead. If you would like to learn more about international business strategies or how to improve your own personal financial health, check out our other content here on WalletHub.com.
The following three paragraphs will be discussed together. Make sure to focus only on the second one while reading the context of each sentence.
Paragraph two: Between 2010 and 2015, real gross domestic product (GDP) grew by a whopping 96%, making Turkey one of the fastest growing economies in the world.
However, before celebrating these numbers too much, we must address the down-side of this boom. During this period, total private sector indebtedness rose from 127% of GDP to 160%.
The past few months have been very tumultuous for the Turkish economy. Following an initial period of stability, the country has seen two major financial crises unfold over the last couple weeks. First was a bank run caused by fears that large banks would fail due to heavy loan exposure to the cryptocurrency market.
Then came a currency crisis as investors fled both the new lira and the nation’s stock markets. Both the currency and stocks fell sharply amid concerns about whether or not the government will be able to maintain control of its money supply and stabilize the system.
These developments come at a particularly difficult time for the Turkish government. Just one month ago, it was celebrating the release from prison of former Prime Minister Recep Tayyip Erdoğan. Since then, he has embarked upon what many see as a power grab through constitutional means.
Economic woes are also likely to put additional pressure on his already weakened coalition partners. While some blame him for the current situation, most agree that his hard line policies left the country with little room for maneuver. He is now facing growing calls for his resignation.
Importance of understanding the recent trends
Why these issues matter: For those who live abroad or outside of the local community, these developments can seem less significant than they are at home.
For those living within the community, though, there are several reasons why these changes are more important to understand.
This article will talk about how well or poorly the Turkish government is doing in its efforts to fix their economy. It will also discuss some potential problems that could arise for the country down the road, as well as what they can do to avoid them.
First, we should look at the state of the current economy- both overall and within each area. These numbers come from an annual report put out by the International Monetary Fund (IMF). You can find this IMF Report here.
The IMF has three main categories when looking at the health of an economy: growth, stability, and recession. A nation gets a score in every category depending on whether the economy is improving, staying stable, or getting worse.
Turkey currently has a -1% growth rating per the IMF due to slow economic expansion. When compared to the past year’s performance which was a +4%, this shows a significant decline!
However, the Stability index is quite strong for Turkey with a ranking of 5/7. This means there isn’t too much concern for either an increase or decrease in inflation, changes to currency are not too drastic, and debt levels remain moderate.
Lastly, the Recession Index comes in at 2/2. This indicates no signs of a downturn just yet!
Overall then, it looks like the economy is heading in a positive direction. But what about specific areas? Let us take a closer look.
The lira has been in steady decline since October 2018, when it reached an all-time high of 9.8 per US dollar. Since then, it has lost almost half its value! At the time of writing this article, you can get yourself one USD to 8.6 TRY exchange rate.
This fall was due not only to rising tensions with Russia and Iran but also decreased demand for imports as countries around the world imposed economic sanctions on Turkey over their dispute with Greece.
However, even before that happened, there had already been concerns about the health of Turkey’s economy. These include worries about whether or not they would be able to repay their debt and finance their spending, and questions about how much longer they could keep supporting higher levels of borrowing and government spending.
In fact, back in August 2016, just months after the coup attempt, Nobel Prize winner Joseph Stigliz said that what we were seeing was “the death throes of an empire” – referring to Turkey’s place in the global order.
In fact, many economists believe that the country will go bankrupt this year! This is not only due to their high level of debt, but also because they do not have enough money for daily operations.
The Turkish government’s liquidity has shrunk by almost half since 2011. Since then, it has spent more than it has received in revenues every month. More than 90 percent of GDP comes from imports, making it difficult to find ways to reduce spending.
Experts predict that an economic crisis will occur at some point next spring or summer. The economy will enter into recession as early as February-March, after which time growth will drop sharply.
Recent developments suggest that this is no longer the case. Finance Minister Berat Albayrak announced in late February that Turkey would be leaving the benchmarked for international borrowing, the developed country category. This means it will now have access to lower interest rates when borrowing money.
The International Monetary Fund (IMF) had advised against this move due to worries about sustainability of the economy. However, with pressure mounting from investors over the country’s high level of debt, they agreed. The IMF lowered their estimate of Turkish government debt by $20 billion since November 2018.
This is good news as it shows investor confidence has been restored. It also gives Turkey more breathing room until it must meet its financial obligations again. Debt service costs the national treasury around 5% of GDP each year so staying within budget helps preserve funding for other areas.
The most significant challenge that faces the Turkish economy is how to combine economic growth with social inclusion. Economic development should bring benefits for all, but unfortunately it has not always worked this way.
Turkey’s experience shows that rapid GDP growth can lead to widening income inequalities as well as increased poverty. This is particularly evident in the recent years when the country experienced strong GDP growth rates of around 5-6% per year.
This article will discuss some factors that contribute to inequality including increasing wage disparities between high paid workers and low paid workers, outsourcing and offshoring, use of cheap foreign labor, tax evasion, and capital flight.
Inequality in wages poses one of the biggest threats to the sustainability of the current model of prosperity. Rising wage differences create an incentive for employers to pay lower wages, reducing employment opportunities for individuals at the lower end of the spectrum. It also puts upward pressure on average wages, limiting job competition and fueling inflation.
Solutions to these problems depend largely upon raising the cost of employing poor quality or illegal services or products, ensuring more even distribution of wealth through taxation policies, and encouraging people to invest directly in assets instead of relying on income.
These issues cannot be solved solely by focusing on lowering aggregate demand via austerity measures though, since such strategies usually have the opposite effect and make the situation worse for already vulnerable groups.
The best way for Turkey to improve their economic situation is by investing in technology. Technology has made our lives more efficient, how could it not be used for good here?
For example, social media sites like Facebook and Twitter have become integral parts of our daily life. They allow us to keep in touch with friends and family, interact with others, and broadcast messages to the world.
By using these websites, people can spread word about businesses or products that they are promoting. It is an effective way to get exposure!
A great way to start investing in technology is in education. You can buy educational software such as Google Apps which give you access to all sorts of online resources. This is helpful because you will have constant updates and tips on how to use the software properly.
You can also learn how to use computers, laptops, phones, and other devices so that you do not need someone else to help you use them. By doing this yourself, you will save money since you do not have to pay anyone to teach you.
This article is very important for international students living in or traveling through Istanbul. International students make up a significant proportion of the city’s population, and most are not familiar with the Turkish language. Therefore, it is difficult for them to find work here without an adequate level of proficiency.
Istanbul has one of the largest foreign populations in Europe, making it easy to go hungry since many restaurants and cafes don’t accept non-Turkish speakers as customers. Fortunately, there are some ways you can assist our friends from abroad!
International charities offer free food to people who are struggling due to lack of resources. You should definitely look into this if you know any German students that could use a hand. Even better, try telling these charitable organizations about your Turkish skills so they can ask you to be a part of their projects!
Another way to help is by offering employment to students at your home country. Many universities have study programs in place where graduates can spend time working while studying away.