Turkey’s economy has performed remarkably well with its steady growth over the past 14 years. A sound macroeconomic strategy, prudent fiscal policies, and major structural reforms have all contributed to the integration of Turkey into the global economy while also transforming the country into one of the major recipients of FDI in its region.
These reforms strengthened the macroeconomic fundamentals of the country, allowing the economy to grow at an average annual real GDP growth rate of 5.6 percent from 2003 to 2016. Moreover, until Q3 of 2016, Turkey’s economy had grown for 27 consecutive quarters, a growth rate that had never been seen before in the history of Turkey. Looking at the last 20 to 30 years of growth rates, there has not been a graph similar to that of the past 14 years. Turkey is no longer vulnerable to crises and fluctuations, and it has now become a country that has strengthened its macroeconomic fundamentals and that has experienced rapid transformation.
Turkey’s impressive economic performance over the past 14 years has encouraged experts and international institutions to make confident projections about Turkey’s economic future. For example, according to the OECD, Turkey is expected to be one of the fastest growing economies among OECD members during 2015-2025, with an annual average growth rate of 4.9 percent.
2016 may not have been the best of times for the Turkish economy with the geopolitical and geo-economic upheavals; however, the economy quickly recovered from the negative effects on the Q3 growth rates and finished strong in Q4 of 2016. Beating expectations by recording a GDP growth rate of 3.5 percent in Q4, after a contraction of 1.3 percent in the previous quarter, Turkey achieved an annual economic growth rate of 2.9 percent in 2016.
In addition, a breakdown of the GDP shows that exports had a strong recovery, expanding by 2.3 percent in Q4 after having contracted for two consecutive quarters by 1.9 percent and 9.3 percent. The depreciation of the Turkish lira was the main reason for exports to be the key contributor of growth in Turkey during Q4 of 2016.
Expanding by 5.7 percent in Q4 of 2016, after contracting by 1.7 percent in Q3, household consumption expenditures were also one of the key drivers behind the growth rate posted in 2016. Turkey, having half of its population under the age of 31 and a growing middle-income class with increasing purchasing power, is set to achieve robust growth rates in 2017 as well.
Furthermore, investment growth expenditures, accelerating to 2 percent in Q4, up from 0.5 percent in Q3, almost reached H1 2016 levels.
A sectoral breakdown of growth in 2016 indicates that the service sectors were not hit by the decline in tourism revenues. In fact, the lifting of the Russian ban on travel to Turkey will have positive effects on tourism’s contribution to GDP growth in 2017.
With the contribution of the Turkiye Wealth Fund, and assuming that tourism revenues grow to the point that the contribution of net exports will be clearly reflected in growth rates and that public expenditures recover to H1 2016 levels, it is possible that Turkey’s GDP could grow by more than 4 percent in 2017 and 5 percent in 2018, in line with the medium-term projections.