Turkey has been through “an astonishing transformation”, says Landon Thomas Jr in The New York Times. Not long ago it was a struggling emerging economy. Now it’s a “fast-rising economic power”.
In 2000 it had a budget deficit of 16% of GDP and inflation of 72%. Now, inflation is down to 8% and the deficit could fall below 3% next year. Its public debt is just 49% of GDP. The credit default swap market now indicates that Turkey is no more likely to default on its debt than Italy.
A clampdown on government spending, deregulation and privatisation, and deepening trading links with nearby countries, have been key to stabilising and expanding the economy. This year, for instance, Turkey has exported $1.6bn worth of goods to Syria and Iran, more than to the US, its longtime ally. Helped along by its large middle class and encouraging demographic profile, with more than 25% of the population under 15, the economy could leapfrog Germany by 2050, according to Goldman Sachs.
Growth averaged 6% between 2002 and 2008 and slumped last year, but Turkey has been “a bright star in the region, the only country where we see something of a V-shaped recovery”, says Christian Keller of Barclays Capital.
GDP jumped by 11.7% year-on-year, boosted by exports and domestic consumption, which rose by an annual 9.9%. Turkey should remain a regional leader, says Capital Economics. Its banking sector is in “comparatively good shape” and a recent drop in the lira will bolster exports.
The European debt crisis is likely to temper growth later this year, however, and any further deterioration in the global outlook would also be bad news. “There are already signs of a loss of momentum,” says Cevdet Akcay of Yapi Kredi Bankasi. “Turkey’s advantage is that it has a large domestic market… [but] in the end global dynamics… define what happens.”
That’s true too for emerging stockmarkets, which find it hard to shrug off global jitters, as the last slump showed. So while the Turkish market is on a p/e of nine and the US-listed Turkish Investment Fund (TKF) we highlighted earlier this year offers a 10% discount to net asset value, it may be best to hold off for now.