The Turkish economy: past, present, and future
Turkey is a tempting place — abundant with valuable natural resources, plentiful commodities, and boasting a robust export profile. It is one of the largest economies in the Middle East and North Africa region. However, it had a significant decline due to recent presidential elections, resulting in Recep Tayyip Erdoğan securing a third term in office.
While the whole world was closely watching the elections in Turkey, reading all kinds of media, traders and investors’ main source of information was the economic calendar, containing the main updates on major global affairs affecting the market. But before making predictions, let’s analyze what Turkey’s economy is made of.
Tourism plays a vital role in the Turkish economy. In 2022, the country welcomed over 35 million tourists, accounting for approximately a quarter of the total European tourist influx. Turkey’s industrial and service sectors are also progressing, centered around major industrial hubs like Istanbul, Ankara, and Izmir. Another significant component of the country’s economy is exports, encompassing textiles, clothing, electronics, chemicals, and other goods. As of May 2023, Turkey’s export figures stood at around $21.7 billion.
The Turkish economy places significant importance on agriculture. Despite the fact that at the start of 2023 indicators reached a nearly all-time low, Turkey still leads in tomato and pistachio production globally and actively exports vegetables, fruits, grains, and meat.
One notable development is the 8.3% increase in fees for ships passing through the straits, as Turkey aims to benefit from geopolitical circumstances related to trade growth and anti-Russian sanctions. This will allow Turkey to earn about $900 million, compared to the previous-year $160 million. Nevertheless, this seems to be insufficient for saving the Turkish Lira, which has reached a new all-time low.
Analysts highlight the reluctance of banks to intervene in currency matters as a key reason for the currency’s weakness, possibly indicating a forthcoming shift in monetary policy. The appointment of Mehmet Shimshek, a former Merrill Lynch strategist, as the finance minister and head of treasury under the new administration, has sparked hope for a return to more conventional economic policies.
Post-election, President Erdoğan has prioritized addressing the high cost of living, exorbitant prices, and reducing inflation to single digits. Officially, the inflation rate is estimated at nearly 40% per year, while unofficial sources claim it exceeds 100% per year.
Rising energy prices pose another challenge for Turkey, leading to increased production costs and higher prices for goods and services.
Nevertheless, Turkey achieved a major milestone in 2023 by signing a free trade agreement with the European Union. This allows Turkey to expand the export of its goods and services to the European market, potentially boosting income and economic growth.
Despite these efforts, Turkey’s economy still faces challenges like high unemployment rates and low incomes. The government is actively working on solutions, including job creation and income augmentation for the population.
The country continues to prioritize the development of its tourism industry, aiming to attract a record-breaking 40 million tourists in 2023. Additionally, Turkey is making strides in e-commerce, positioning itself as a global player in the market by 2024. However, the full recovery of the Turkish economy will require time and effort on the part of the government and business.