Turkey, located at the crossroads of Europe, the Middle East, and Asia, is one of the world’s most dynamic economies. Despite the effects of the global financial crisis in 2008, the country has experienced remarkable economic growth over the past decade, making it a major player in the global economic landscape. In this article, we’ll explore the recent developments of Turkey’s economy, analyze its drivers and growth, and discuss some of the policy challenges the country faces in terms of fostering sustainable growth.
Historical Economic Overview
Throughout much of its history, Turkey had a weak, centrally planned economy with considerable reliance on imports. Low domestic investment, an unstable currency, and limited financial resources allowed no real impetus for growth.
In the mid-1980s, the Turkish government adopted a series of liberal reforms which opened the country to global trade and investments and shifted towards a more market-orientated economy. The result of this shift has been an increase in both economic activity and the standard of living. As of 2019, the country had an estimated GDP of $814 billion making it the 19th largest economy in the world.
Growth Drivers
Turkey’s economic growth is mainly driven by the private sector and largely depends on the continued availability of access to global capital markets. In terms of investment, the country benefits from its geographic location, being a bridge between the European Union, the Middle East, and Central Asia.
The government has also implemented several infrastructure projects such as highways, railway networks, and power plants, which have boosted economic growth and created jobs.
Additionally, a major rise in domestic consumption has been instrumental in driving growth in the Turkish economy, with consumer spending accounting for more than 60 percent of GDP.
Economic Sectors Industry
Industry is the largest sector of the Turkish economy, accounting for around 36 percent of GDP. The industrial sector is divided into categories such as manufacturing, construction, and mining which have all contributed to the country’s economic growth. In addition, the industrial sector has benefited from the government’s investment in infrastructure projects and seen steady growth in recent years.
Agriculture
Agriculture accounts for around 11 percent of Turkey’s GDP and employs around 15 percent of the population. The sector is mainly focused on producing food and agricultural products such as wheat, sugar beets, olives, and livestock. In recent years, the sector has benefitted from increased foreign investment, which has made it easier to access the global market and new technologies.
Services
The overall services sector in Turkey has seen major growth in recent years, accounting for over half of the country’s GDP. This includes tourism, banking, finance, and communications which have seen a steady increase in recent years.
Monetary Policy and Interest Rates
Turkey’s Central Bank has implemented an expansionary monetary policy since the financial crisis in 2008 to encourage economic activity, leading to a growth in private consumption. As a result, the country’s interest rates have been at an all-time low.
Inflation
Turkey has experienced moderate inflation since 2008, with a peak of around 11 percent in 2010. The average annual inflation rate since then has been around 8 percent.
Unemployment
The unemployment rate in Turkey has been steadily decreasing since 2009 with the latest figures showing an unemployment rate of 13.5 percent.
Public Debt
Turkey’s public debt rose rapidly in the wake of the global financial crisis, but has since then decreased and was at 33.7 percent of GDP at the end of 2019.
Current Economic Performance
The Turkish economy is currently growing at a rate of around 5 percent per year due to a combination of strong domestic demand and an increase in government spending. The strong growth has seen an increase in employment, with the unemployment rate decreasing to its lowest level in 20 years.
Policy Challenges
Despite the ongoing growth in the Turkish economy, the country still faces considerable policy challenges in terms of fostering sustainable growth.
Reforms
In recent years, the government has implemented a range of economic reforms, including in the areas of taxation, transportation infrastructure, and labor markets. The reforms have seen some improvements in the efficiency and competitiveness of the country’s economy.
Dependency on Foreign Investment
Turkey remains heavily reliant on foreign investment for long-term growth. The country has experienced significant capital inflows from foreign investors, which has helped to finance its external deficit. However, the country is also exposed to exchange rate fluctuations, which can pose risks to its economic stability.
Government Intervention
The government has increasingly intervened in the economy in recent years, setting prices and regulations which have sometimes hindered the efficiency of the private sector and prevented the markets from operating freely.
The Turkish economy has come a long way since its liberalization in the mid-1980s and has seen steady growth over the past decade. Still, the country faces a number of challenges in the form of government intervention, dependency on foreign investment, and reforms. In order to foster sustainable economic growth, the country needs to continue to implement policies that promote competition and reduce regulation.
