Turkey: Macroeconomic Country Outlook
- According to GlobalData, the real GDP growth was recorded at 11% in 2021, compared to 1.8% growth in 2020
- Turkey was ranked 74th out of 152 nations in the GlobalData Country Risk Index (GCRI) Q2 2022
- GlobalData forecasts the services sector to grow by 13.6% in 2022
The country has a stable banking sector and endured several financial crises. After the global financial crisis, the Central Bank of Republic of Turkey (CBRT) adopted a policy mix where reserve requirements and the interest rate were used to reduce the negative effects of volatility in capital flow. This helped the country to maintain a resilient Turkish financial system. According to the Financial Stability report November 2021, published by the Central Bank of Turkey, the non-performing loans (NPL) ratio of the banking sector stood at 3.5% as of November 2021, compared to 5.4% at the end of 2019.
Key findings
- Turkey signs several international agreements: In the first seven months of 2022, Turkey signed several international agreements with nations in areas, including environment, agriculture, and meteorology, according to Turkey’s Official Gazette. These include: 1) a memorandum of understanding (MoU) with Malaysia environmental cooperation. 2) MoU with Maldives and Nicaragua on agriculture. The MoU aims to encourage cooperation between agricultural institutions, organizations, and agricultural technology. 3) Agreement with El Salvador to strengthen existing cultural relations and promote cooperation based on equality and mutual respect. 4) An agreement with the UAE on meteorology. 5) In July 2022, Turkey and Malaysia signed seven MoUs with an aim to increase cooperation across various sectors, including science, defence, technology, and education.
- Turkish parliament approves budget for 2022: In December 2021, the parliament approved Turkey’s 2022 budget. According to the budget 2022, the budget expenditure and revenue has been projected at $104.9 billion and $88.2 billion, respectively, for 2022. The budget deficit is estimated at $16.7 billion for 2022. However, in June 2022, Turkey’s government proposed a supplementary budget of $57.7 billion, to cover the rising cost of depreciating currency against the US dollar, global energy prices and increasing inflation.
- Turkey is ranked 33rd out of 190 countries in the World Bank’s doing business ranking in 2020: According to the World Bank, Doing Business Report (2020), Turkey scored 76.8 out of 100. The country was ranked 77th out of 190 countries in terms of starting a business. Starting a business in Turkey takes an average of seven days as compared to the OECD average of 9.2 days. Dealing with construction permits takes 18 procedures in Turkey, compared to an average of 16.2 procedures in Europe and Central Asian countries.
- GlobalData revises growth forecast for Turkey: In June 2022, GlobalData revised its macroeconomic growth forecast for 2022 to 2.8% from previous 3.4% forecast made in February 2022. As per the OECD, although exports will continue to benefit due to reallocation of supply chains, the Russia-Ukraine war is likely to have an adverse impact on the overall external demand and commodity prices. Moreover, due to high level of food price inflation, Turkey is expected to be above 70% in 2022. GlobalData forecasts the Turkish economy to grow by 3.4% in 2023.
- Turkey has high level of youth unemployment rate: The youth unemployment rate (percentage of the total labor force aged between 15 and 24) is very high in Turkey. The unemployment rate in the EU increased after the 2008 financial crisis, but in most countries, the unemployment rate has decreased in recent years. Due to the outbreak of COVID-19 pandemic, the youth unemployment rate peaked in Q1 2021 and reached 25.3%, according to the Turkish Statistical Institute. However, in Q1 2022, the youth unemployment rate recorded at 21.1%, a 0.3% decrease as compared to Q4 2021 and a 4.2% decrease on an annual basis. However, the youth unemployment rate continues to remain high in Turkey.
- With an aim to boost renewable energy Turkey invested over $1 billion in wind energy in 2021: According to Europe’s wind power trade association, Turkey invested around $1.1 billion in new wind energy capacity throughout 2021. The figure was lower as compared to $1.8 billion invested in 2020. Turkey was the fifth largest wind investor in Europe in 2020. In order to move more towards renewable energy, Turkey exceeded 10,000 megawatts (MW) wind energy installations threshold in 2021. Wind energy accounts for approximately 10% of Turkey’s power mix, making the second-biggest source of renewable energy after hydropower. According to the Turkish Wind Energy Association (TWEA), around 1,750MW in wind energy capacity was added throughout 2021 with the total wind energy installed capacity rising to 10,750 MW by the end of 2021.
Key fundamentals
Sectoral outlook
- Positive outlook for tourism sector in 2022: According to the World Travel and Tourism Council, tourism contributed 10.3% towards GDP in 2019. However, this contribution decreased to 5.3% in 2020, and increased marginally to 6.1% in 2021 due to the outbreak of COVID-19 pandemic, which led to imposition of domestic lockdowns and international travel ban. However, in March 2022, Turkey opened its borders to international tourists. According to the data by the Ministry of Culture and Tourism, during the period from January to May 2022, the number of foreigners who visited the country increased by 207.1% annually, reaching 11.3 million. In addition, according to Antalya City Council Tourism Working group, between January and May 2022, the city welcomed more than 2.4 million foreign tourists, an increase of 223%, compared to the same period of the previous year. The city aims to welcome 10.9 million foreign tourists in 2022. Moreover, the Turkish government aims to welcome around 42 million tourists and generate $35 billion revenue from tourism in 2022.
- Brighter outlook for Turkish renewable energy and waste management sector: Simultaneous increase in population and economic growth have increased Turkey’s energy demand in recent decades. The Ministry of Energy has announced plans to execute deep sea drilling activity in the Mediterranean Sea and Black Sea for oil and natural gas exploration. The government has made it a priority to increase its share of renewables to 30%, with geothermal installed capacity to be 3GW by 2023 and installed capacity of 16GW for both solar and wind by 2027. As the country is transitioning towards green energy in order to build environment-friendly cities, the automotive industry has also shifted gears to embrace renewable energy resources. In 2020, the number of electric and hybrid cars in use in Turkey increased by 150%, compared to last year, reaching 44,291, according to the Turkish Statistical Institute. For the year 2023, the Zero Waste Project targets 35% recovery rate, which is the proportion of waste recycled among all recyclable materials in the waste stream. Moreover, the project plans to increase the recycling rate for packaging to 65% by 2026.
- Construction sector to witness recovery in 2022: Turkey’s construction output grew by 18% in 2021. GlobalData expects the construction industry to grow by 19.2% in 2022, and then expand at an annual average rate of 21.2% during 2022–23. The government plans to speed up spending on infrastructure projects, which is expected to help support the overall construction output growth. In April 2022, the Turkish government unveiled a 30-year infrastructure strategy, where it aims to invest $198 billion in rail, road, air, and maritime infrastructure. It will focus on improving regional connectivity through the development of the country’s rail, road and air transport infrastructure. The government stated that the investment would help add over $1.0 trillion to GDP and create employment opportunities for 27.7 million people by 2053. Moreover, the government states that the Transport and Infrastructure Master Plan would contribute towards the economic development of the nation.
GlobalData Country Risk Index (GCRI) – Q2 2022
Turkey was ranked 74th out of 152 nations in the GCRI Q2 2022. The country’s score of 44.1 is in the manageable nations band (40─50). Turkey’s overall risk score was higher than the East Europe average and world average in the GCRI Q2 2022. Depreciation of the lira and high inflation level due to the Russia-Ukraine war, led to decreasing investor confidence, which has impacted the economic recovery. Furthermore, the COVID-19 pandemic has dealt a severe blow to tourism, one of the country’s mainstays.
GCRI Methodology
GlobalData’s unique Country Risk Model determines the existing and future level of country risk by assessing various qualitative and quantitative factors. The index is designed to help firms formulate their global business strategies based on historical developments in an economy.
The Country Risk Index incorporates the latest available macroeconomics, political, social, technological, environmental, and legal data from a range of recognized national and international statistical sources and incorporates proprietary data from GlobalData. The Eastern European countries in this publication include Bulgaria, Czech Republic, Hungary, Poland, Romania, Russia, Slovakia, Turkey, Ukraine and Croatia.
About the report
GlobalData Macroeconomic Outlook report is designed to provide detailed macro-economic analysis which will help clients in their business planning, investment and strategic decisions, and analysis. It also provides a quick view of the current situation and the risk score of the country in comparison to region and world based on the proprietary risk framework. The report also highlights key strengths, weaknesses, opportunities, and threats in each of the pillars of PESTLE, economic growth prospects, and key events which can impact the country’s future outlook.
More details: Macroeconomic Outlook Report: Turkey
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