Economic Outlook

2014 has a positive ending despite a though start

Despite the latest quarterly figures have not arrived yet, it is estimated that the economy has grown by 2.5-3% in 2014. The current account deficit in 2014 has substantially shrunk thanks to the positive dynamic created by ‘rebalancing’. Judging from the latest figures, it is highly likely that 2014’s current account deficit will realize at around 45 billion USD or 5.5% as a percentage of GDP. However, such a current account deficit is far from being ‘reasonable’ and/or ‘easy to subsidize’. Additionally, end of year inflation rate occurred at 8.2%, which is far beyond the 5% target rate.

Factors such as the mild political climate in the aftermath of two important elections, the preparation of the government for new reforms, and the sharp fall down in oil prices, have relatively improved Turkey’s image in the eyes of the investors. Especially, the sharp fall down in oil prices since October has constituted an important advantage for Turkey.   

2015 will be a fluctuating year for Turkey

According to Deloitte’s base scenario, in 2015 there will be a relative improvement in main macroeconomic indicators echoing the fall down of oil prices. Yet, the estimations to see a fluctuating year in 2015 still remain. In 2015, it is expected that the growth rate will be at around 3% far below the Mid-term Plan target (4%), the inflation rate will occur at 6.5-7% band at the end of the year despite seeing lower rates during the year, and the current account deficit as a percentage of GDP will drop to 4.5% or to around 35 billion USD with the impact of falling oil prices and the relatively weak growth rates. The report states that this estimated economic performance, albeit acceptable, is far below Turkey’s potential.

The sharp fall down in oil prices, when net impact is considered, seems to be positive for Turkey in the short-term. However, improving the growth dynamics in the mid-term, requires structural reforms designed to increase savings and to improve competitiveness and investment climate.

Global economic growth seems unstable and weak

Globally, the most controversial element of risk discussed at the outset of 2015 is the unstable and weak outlook of the global economic growth and in this context, the fear of ‘deflation’. From this perspective, the steps taken by the European Central Bank since June do not seem to be sufficient. The bank is expected to initiate a ‘real’ quantitative expansion program, similar to that of the USA.  As to the emerging market economies, the overall growth is observed to be slowing down. The normalization process of the US monetary policy will lead to a relative decrease in capital flows to Turkey as in the rest of the developing markets. On the other hand, it is hard to estimate to what extent Turkey can be positively affected by the possibly expanding monetary policy in Europe.